For the most part, everyone would like to help our loved ones or one of our close friends to get out of a tough financial situation whenever we can. When we do so, we would like to believe that the person we are helping would do the same if we were in a similar jam. If you feel this way, you need to read this article with an open mind because things can often differ when seeing it from the other side.
Based on this premise, many of us look the other way when determining the risk that is involved in putting our name on a contract as a co-signer. I say this because if we really looked at all the risk that is involved, maybe we wouldn’t do so without thinking of all the consequences. Sometimes our decisions are based on our feelings at that moment, but when you are signing a legal contract, you must be careful as the legal consequences can be costly.
We need to know that this is a very dangerous step that we are taking when we elect to co-sign for someone. Once the individual that you helped is unable to pay, according to the collection professionals who handle these types of transactions for a living, you become the main person that they come after. The primary borrower, who you have gone out of your way to help, is no longer pursued for collection. Consequently, you now become the person that is chased down for paying back that obligation and all the associated late fees.
I know that this isn’t fair, but in a world of legal contracts, this is the reality. If a default occurs, the lending party looks to you to clear up the debt and not the primary borrower. They follow these procedures because based on their due diligence, which was done prior to you signing the contract. They know that you have the credit quality to pay the debt. In other words, once you elect to co-sign this obligation, you reduce the lender’s risk on this loan and that is why the loan was approved so easily. This is why the lenders request that you have a co-signer on your debt, they know from past experiences that this is a loan of high risk.
These lending companies, which are a very profitable business, conduct this credit quality analysis on every contract. They know that the co-signer is normally more secure than the primary borrower, and will pay to keep their good credit standing.
Historically, a number of these co-signing contracts have broken up a lot of good relationships. It also has created a lot of bad blood between friends and relatives that often cannot be repaired. This can happen whenever money issues like this are involved. The pain gets worst when the financial institution that holds the debt reminds you that the burden of payment is yours and is no longer the person that you “helped”. Legally, this arrangement stinks, but it’s the law and you will be held accountable.
To be truthful, no one likes to hear about this process because it turns a good mood into a bad one. However, I’m advising you about this legal matter because I don’t want you to get involved in a transaction like this without being informed of all the facts upfront. Unfortunately, I went out on the limb to co-sign for someone a few years ago and it backed fired on me. Since I don’t want you to go through the same bad experience, I’m writing this article as a warning to others who may want to.
In closing, I need you to consider the legal obligation that is attached to co-signing a contract very seriously, as once you sign the document, you are taking on an enormous risk. I believe that you can help someone in another way that doesn’t put you in a legal bind. You can help them by giving a financial deposit, small loan, or by any method that doesn’t require you to sign a document where you could be on the hook for years.
If you have any comments, feel free to send them to me.