When you are co-signing a loan, you need to be as careful as you would have when taking a solo loan. It does not matter if you are well acquainted with the primary borrower or not, but knowing their financial health and repayment ability should be a concern before your emotions get in the way. Making a financial commitment is a huge step, and you should be aware of responsibilities as being a co-signing partner of a loan, if you wish to be as one.
1. Terms and Conditions of the Loan
You should be aware of the loan amount, due date of monthly payments, interest rate, the grace period and other details. This step will ease off any surprises that may come if the primary borrower defaults. Probably it will assist you in aiding the loan taker to follow a sound financial habit so that the payments are made regularly.
2. Good Credit Score? Negotiate with Bank
As a co-signee if you have a good credit score, then you can negotiate with the bank on reducing the interest rate or make the tenure more flexible. Request the bank for sending you a copy of documents of the loan and those sent to the loan taker, so that you have the knowledge of payment schedules.
3. Effects on Your Credit Score
If the loan taker avoids or misses payments, then it will mar not only the credit score of that particular person, but the same will reflect on your credit report, lowering your credit score. So, you share the responsibility of the loan as well and that of the primary borrower. Having a low credit score could be a nuance for your financial journey, and bad credit history sometimes can be on your credit report for a long time.
4. Plan for an Exit Strategy
You can share the responsibility of the loan with the primary borrower. If the latter is unable to pay the instalments at time, but you can, then do help but of course make sure the loan taker does remain accountable with you. Missing instalments will affect credit score for both, thus there must be a strategy to pay for loan. If you are not sure about being a co-signer of the loan, then don't be one.