Cosigning and Delinquencies
What happens when the person you cosigned for stops making their payments?
It’s not usually something a person really thinks about before cosigning. Cosigning is usually a quick process that most people don’t really think twice about doing even though there are major financial repercussions. For instance, imagine that your brother - who has bad credit, by the way - asks you to co-sign for a car loan because he can’t qualify for a loan based on his credit alone. Without your signature he’ll need to make a huge down payment and pay a whopper of an interest rate, but with your signature he’ll qualify for a loan at a decent interest rate with a low down payment. He asks you to do him this favor, and since he’s your brother and a nice guy you agree.
Fast forward to a year or so down the road. Your brother hits hard times after losing his job and misses a payment on the car. The lender calls him and asks for payment, and when he says he can’t afford to make the payment the lender calls you. You’re surprised because you had forgotten all about co-signing for the loan, and you’re even more surprised to suddenly have a lender calling you out of the blue asking for a payment.
Are you liable for the payment? If you co-signed for a loan then the answer is yes, you are.
Co-signing for a loan is rarely a good idea. It’s like you’re telling the lender that you’re willing to be liable for unpaid balances even though you can’t enjoy any of the benefits of the loan. If you co-sign for a credit card, you don’t get to use the card but you’re still liable for the amount due if the primary account holder doesn’t keep up on the payments. Since you never know when a person’s finances are going to take a hit, you can never be assured that you won’t wind up paying for someone else’s debt if you’re a co-signer.
Someone may have all the intentions of keeping up with payments but then suddenly something happens and the person simply can’t meet the minimum payment due. This makes for a real mess when a co-signer is involved.
So what can you expect to happen if the person you co-signed for stops making payments? If you’re lucky, the person will contact you before falling behind on the payments and ask for your help. On the other hand, what usually happens is the person is too embarrassed to admit that there is a problem…or simply forgets that you co-signed in the first place.
You’ll get a letter or phone call from the lender asking for payment. By this time there is a chance that your credit report already has a late payment listed on it, so your credit score has suffered as a result. If you don’t make the payment, and the other person doesn’t make a payment either, then the next thing you know you’ll get notices in the mail of collection efforts that may lead to legal action. If the amount is large enough you might find yourself going to court.
You will encounter the same situations as though the debt was your own.
How do you avoid this situation? If you do co-sign it’s a good idea to stay in direct contact with the person and make sure that payments are made. In an ideal situation you will have the money set aside to pay off the debt should the need arise. Or you can just choose to never co-sign, which is a pretty solid financial decision.





