FRANK D. TAFF, J.D., Attorney at Law - 3601 SW 29th Street, Topeka, Kansas 66614
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Co-signing a loan is a favor you should think twice about

About 90 percent of all private student loans were co-signed in 2011, most often by a parent or grandparent, according to the consumer watchdog agency. That's up from 67 percent in 2008. Students are often required to get a co-signer if they have little or no credit history. Additionally, getting a co-signer can result in a lower interest rate.

But two major things happen when you co-sign. You also become the borrower, and you tie your credit history to the credit record of the person getting the loan.

You are wholly and equally responsible for the debt. Not half or some, but all of it. You are not a backup borrower. When you co-sign, you are agreeing to pay that debt in full if the primary borrower defaults or misses even just one payment.

And why wouldn't lenders come after you right away? You were the reason they made the loan in the first place. You're the one with better credit, or the borrower wouldn't have needed you.

There's lots of pressure to co-sign when students can't get enough scholarships, grants or even less expensive federal loans to cover all the expenses.  But what happens if the student doesn't finish college and can't pay, or graduates and can't land a job with enough salary to handle the payments?

The Federal Trade Commission offers good advice on what to expect and what to ask for if you are bent on co-signing. Go to www.ftc.gov and search for "Co-Signing a Loan." For instance, make sure you are privy to information about the loan and you are allowed to follow the payment history. It's your loan, too.

Here's one thing to keep in mind. The same collection methods used for the primary borrower can be used to collect from you, including getting a court judgment to intercept some of your wages.

27 Comments to Co-signing a loan is a favor you should think twice about :

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If you want to co-sign a loan with your friend or relative? Before you say yes, think about the obligations involved and how they may affect your own. There is a good post for those students who really want to use co-signing loan. Thanks..
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