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Cosigning a Loan

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What Is Cosigning?

The act of cosigning a loan is signing a loan with the person who is acquiring the loan. When you cosign on a loan, you are signing a contract that makes you responsible for the entire debt without receiving any part of the loan.

What Are the Consequences of Cosigning?

There are several consequences that may result from you cosigning a loan:

  • If the primary borrower does not pay his debt, you will have to. In some states, the creditor can come straight to you, as a cosigner, before going to the borrower.
  • You may also have to pay late fees or collection costs associated with a default on the loan.
  • The creditor can use the same collection methods against you as against the primary borrower.
  • If the primary borrower does not pay and goes into default, it will ruin your credit.
  • Cosigning on another person's debt may affect your own ability to receive loans. The debt is also considered yours and raises your own outstanding balance.
  • Cosigning a loan for a son or daughter might affect your estate or gift tax exemptions.

How Much Can a Cosigner Be Held Liable For?

A cosigner can be held liable for up to the full amount of the loan and an additional late fees or collection costs.

If I Cosigned, How Long Will the Primary Borrower's Debt Exist in my Credit History?

If the information is correct, it can last on your credit history up to seven years.

Remember, creditors are required to give you a notice that explains your obligations as a cosigner. Make sure you understand the terms of the notice given to you.

Do I Need a Lawyer If I Am Cosigning a Loan?

Since cosigner rights vary by state, you should consult a business lawyer in your state regarding your rights as a cosigner. A finance lawyer could provide helpful tips before, during, and after the cosigning process to protect your credit.

Photo of page author Kristen Johnson

, LegalMatch Legal Writer

Last Modified: 04-11-2018 08:42 PM PDT

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