Co-signing your friend’s or a family member’s loan might appear like the right thing to do. If you can help someone during this New Year, why shouldn’t you? Nonetheless, before you consider signing your friend’s bad credit loans, you should be aware of the implications. There are many risks that come with the decision to co-sign a loan, as follows.
You Are Held Responsible for The Bad Credit Loans
Even if you are co-signing a loan for a house you won’t be living in, or for a car that you won’t be driving, when you co-sign a loan, it simply means that you are held liable for making repayments. While it is true that having an additional line of credit might benefit your credit score, the advantage isn’t there – unless your friend makes timely repayments for the bad credit loans.
Plus, considering that you qualified as a co-signer, the odds are you don’t need additional credit lines. At the same time, you should know that when you agree to co-sign a loan, if the loan isn’t repaid, you can be held liable. That being said, make sure you factor this in beforehand.
The Payments on the Co-Sign Loan Account Will Affect You
When you decide to co-sign a loan, it goes without saying that you don’t get to benefit from the loan. However, whether the payment is made or not will affect you. That is to say, if your friend makes late payments, it would be as if you were the one that made late payments, as well.
In other words, that late payment will appear on your credit report as a negative listing. Evidently, the more late payments, the lower your credit score will be. It goes without saying that this might limit your options next time you’re looking for financing.
In the worst-case scenario, it might take a while until the creditor informs you of the delinquent payments – at that point, it might be too late for you to do something to save your credit score.
You’ll Increase Your Outstanding Debt
Moving on, if you’re thinking of helping a friend by co-signing his/her bad credit loans, you should note that this decision will increase your debt to income ratio. Thus, it would be safe to safe that this will inevitably affect your creditworthiness and the way in which lenders convey you.
When a creditor will assess your application, the fact that you’ve co-signed a loan won’t necessarily help you out – especially if your friend isn’t the most responsible borrower.
A Third-Party Collector Might Come After You
No one anticipates not being able of making timely repayments. Nevertheless, this may happen – especially for people looking for bad credit loans whose income isn’t stable. Considering that your loved one fails to make repayments and defaults on the loan – do you know what will happen next?
In this scenario, if the payments are delinquent, a third-party collector is entitled to come after you. To make matters worse, you might end up being sued for bad credit loans you never even got the chance to use. Having a judgement entered against you is, without fear of contradiction, one of the worst entries you can have on your credit report.
On the other side, considering that your friend decides to discharge the debt in bankruptcy, a judge cannot come after them. Still, you might be forced to repay the debt, or, alternatively, you might need to file bankruptcy, as well.
Getting Out of Co-Signing Bad Credit Loans Isn’t Easy
If, say, you’ve ended up co-signing a loan and you’ve had a change of heart, getting out of it is far from being easy. That is to say, even though you might regret your decision, once you entered a binding contract, getting out of it is really complicated. The only way in which that could happen is if the other person gets your name off the account.
Still, in order for that to happen, their financial situation must be better, so that they can qualify to get financing without a co-signer. Alternatively, they might consider collaborating with a reputable provider of bad credit loans, such as Australian Lending Centre.
Your Relationship Will Suffer
Moving on, if the co-signed arrangement doesn’t go as planned, not only that your financial situation will worsen, but this might also harm your relationship. How will you react in the event in which your friend doesn’t manage to repay the loan and you’ll be held responsible to make repayments? What if you end up in court due to this scenario? Ideally, you shouldn’t mix relationships with finances, as the consequences could be fatal, especially if the loan terms are far from being favourable.
To sum up, these are some of the main considerations you should think of before agreeing to co-sign your friend’s bad credit loans. Being fully aware of the risks involved is mandatory so that you know what you’re getting yourself into.