Why Cosigning A Loan Could Be Beneficial

Undoubtedly, there is a lot to think about when deciding whether cosigning a loan for a friend or family member is a good idea. Doing so includes not only the agreement to potentially pay off unpaid debts, but also any fees that might come with them. Surely, there are risks that come with making such a decision, but there is potential for benefits as well. In fact, there are things to think about on both sides of the coin.

It seems like there are no real benefits to being a cosigner. However, consider the difference assuming this role will have on the life of your loved one. Without someone to sign off on borrowed money with them, a person may not be able to take college courses or make a major purchase such as a car or a home. Furthermore, having such debt for the first time could teach a person to be responsible with his or her money.

There are a lot of responsibilities that come with being a cosigner, though, which cannot be ignored. You will be required to provide an asset, such as your house, which will be taken as payment if money is not paid. Additionally, the borrower's debt on this money will be considered the cosigners debt as well, and will in turn show up on your credit report if you choose to give your signature.

For this reason, one should truly be thinking about the major risks that come with signing. For example, one must know that cosigning means taking on debt that will affect you in all the ways your own debt would. It may be more difficult to lend money in significant amounts for some time afterward. It may also mean that you will be contacted immediately if the payments are not made precisely on time.

The cosigner must also consider the state of his or her credit score. If the borrower is unreliable, this could take a toll on the score of the cosigner as well. Credit reports are something that all companies look at, including insurance companies when they give out premiums. The detriments could also affect the cosigner's spouse's credit history in certain states with community property laws.

All in all, though, cosigning a loan for a loved one may prove to be the biggest favor a person could do. It will put them on a good financial foundation for the future, giving them better prices on insurance and better credit card rate. It could also better the cosigner's credit, allowing him or her to reap all the same benefits of having a decent credit score.

By: Gerald Hipps


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