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About Co-Signing

When an individual credit applicant does not meet a lender's requirements, they may be able to obtain a loan or other account by having a co-signer. The co-signer's personal credit will also be checked, and s/he will be required to sign a contract agreeing to pay the debt if the primary applicant does not. Typically, the contract will specify that the primary applicant and the cosigner are "jointly and severally liable" for the debt.

This means that if the primary applicant defaults (usually by missing one or more payments), the creditor can attempt to collect from either them, or the cosigner, or both, until the full amount is paid. The cosigner could potentially end up paying the entire debt. S/he could be sued, and have assets seized and/or wages garnished.

This includes debts from a "deficiency" following a repossession.

If you are asked to co-sign a credit application, think about it very carefully. You will be taking a risk, but will you benefit from it? What will the loan be used for? Who is the primary applicant? Is it your close sibling or long-term spouse? Or is it the boyfriend/girlfriend that you have known for only a couple of months? Is their own credit merely insufficient, or is it damaged? If they have been irresponsible with their past creditors, will they really be more reliable now, or will they continue the same pattern of behavior, thinking that you will, of course, "bail them out", and absorb the consequences of their actions? Do they really understand the difficulty they could bring upon you if they default? Do they really care?

Co-signing on a credit application can sometimes be a good thing, but only if the primary applicant behaves in a diligent, responsible manner, and takes their share of the obligation seriously.

Thousands of well-meaning people have had their hard-earned good credit ruined as a result of cosigning for someone else. If you are not prepared to pay the entire debt without serious damage to your own financial position, then do NOT cosign for another person's debt.

A related topic is Authorized Users.


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