|Posted by: Tails Dec 16 2003, 08:39 PM
| Got a question about cosigning a loan. I'm getting ready to cosign a loan for my brother to get through a trade school. On contention of me cosigning he has to agree and sign a contract basically stating that he will be staying at my place of residence and following the rules I set forth.
Would a lender take this contract into account if he was to become late on the loan, or default on the load? Basically what I'm saying if this contract was set forth would I be able to shed the responsibility of it?
Thanks for the help
|Posted by: loanuniverse Dec 17 2003, 09:21 AM
The fact that you have a contract between you and your brother would not have any effect on your responsibility for the loan.
Basically, lenders require cosigners in order to have people qualify for loans that they would not be able to qualify for by themselves. That pretty much tells you that the lender considers this particular loan a higher credit risk.
The following are some thoughts about cosigning and your situation. These are just thoughts and opinions and I might be wrong in some of them so take those into consideration:
1- The quality of the school and the marketability of being a graduate of the school should be taken into account. I personally have a low opinion of many of these technical/trade schools. Do not get me wrong, I am sure that there are a lot of schools out there that are great, but I have heard many stories from people that I have known regarding how they are now in debt and have had to default on those loans because they can not get a job with a degree from those schools.
2- Even if the trade school seems like is not going to work, I understand how sometimes we have to do stuff for family. I just wanted you to be aware of that potential problem.
3- By cosigning, you will be responsible for the debt. If the borrower does not repay, you will have to. Can you pay it?
4- Your liability will not be restricted to the amount of the loan. A friend of mine borrowed $5,000 years ago to attend a technical school. He owes about three times that amount in late fees and interest charges. Once a loan goes into default the lender can increase the interest rate to a “default rate”. As a cosigner, you will be responsible for all of them also.
5- Other creditors will view the cosigned loan and take it into consideration when calculating how much more debt you can take on.
6- Some states allow the lender to request payment from you directly without even having to try to collect from the primary borrower. If you are in one of those states, chances are that the lender will be coming after you first.
7- When there is a default, lenders usually ask for all of the money owed at once. Good communication between you and your brother is needed to avoid defaults. It might even be to your benefit to take over a payment if he is short that month to avoid the loan going into default and having the lender request all of the money at once.
In conclusion, the contract between you and your brother is not going to help you shed the responsibility over the loan. Cosigning for a relative or friend is most of the times not a good proposition, but it is a necessity for them to be able to get credit. Go into the transaction with open eyes and realize that if your brother can not make the payments you will have to pay all of the money.
Hope this helps