Gustan Cho Associates
May 27, 2015
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Co-Signing

Co-Signer

Co-Signing On A Loan

Many consumers with little or no credit may require a co-signer by the creditor in order to get a loan approval.  Auto finance companies require co-signers for auto buyers who have no credit, little credit, short term credit history, not enough credit tradelines, or bad credit.  The reason finance and loan companies require co-signers is in the event if the main borrower defaults on the loan agreement, the creditor will go after the borrower who is co-signing on the loan.  Mortgage companies also require co-signers with mortgage loan borrowers who have no income, little income, short term on the job, no credit, little credit, short term credit, and bad credit.

Risks With Co-Signing On A Loan

There are risks with co-signing on a loan.  The payment history of the main borrower is also reflected on the credit report on the co-signing borrower.  Timely payments from the borrower are reported as timely payments on the co-signing borrower.  However, if the main borrower is late on his or her payment, that late payment will be reported as a late payment on the co-signing borrower and will hurt the co-signers credit scores.  One 30 day late payment will drop a borrower’s credit scores by 50 or more FICO credit points.  Being a co-signer can damage the co-signers credit if the main borrower is irresponsible or cannot make his or her debt obligations.

What If Main Borrower Defaults On Loan?

Co-Signing on a loan comes with the liability of being responsible on the loan in the event if the main borrower defaults.  In the event if the main borrower defaults on his or her loan, the creditor will come after the co-signer.  Creditors and collection agencies will due their due diligence and go after the main borrower in the event if the main borrower defaults on their loan.  If the creditor and/or collection agency has exhausted their efforts in trying to collect from the main borrower and the main borrower has no job or assets and is uncollectible and judgment proof, then the creditor will try to collect and go after the co-signer and/or co-signers.  If the creditor and/or collection agency sees that the co-signer or co-signers have jobs and assets, the creditor and/or collection agency will vigorously go after the co-signer(s) .  Collection agencies can try to sue the co-signers and take them to court to obtain a monetary judgment.  Once they get a court judgment, they can proceed with collection proceedings such as wage garnishment, freezing assets such as bank accounts, and placing liens on real estate.

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