What to consider before co-signing on a loan

A co-signer on a loan has certain rights and responsibilities that he must consider before making the important decision.

A co-signer could end up with bad credit history if the other borrower defaults on the loan, according to the Federal Trade Commission (FTC). It is important for a potential co-signer to consider if he can afford to pay off the loan himself in the case of a default on the part of the other party. In the case that he cannot, he can negotiate a contract with the lender in which case the co-signer will only be responsible for specific parts of the loan.

It is also important to be cautious in pledging any property as collateral. If the other party defaults, such items may be taken for the benefit of the creditor.

Since the behavior of the other borrower is so important in determining the consequences a co-signer faces, it may be advisable for the co-signer to request a written notice every time the primary borrower misses a payment.

As with any important financial transaction, a co-signer is advised to read all relevant documents relating to the contract and request a personal copy of the contract.