Have you ever been a cosigner on a contractual agreement? Have you ever needed a cosigner on a loan agreement? Some people don’t know exactly what your obligation is as a cosigner. I have heard comments such as “that’s not my loan I’m just the cosigner.” Well actually if you are the cosigner it is your loan. Well for any average buyer, understanding financial instruments working with personal loans can be quite difficult. You can click on this link here to learn more about that and keep yourself updated on all these terms.
As a cosigner, you are saying that if the person that you cosigned for does not make the payments you will make the payments. When this type of agreement exists, both cosigner and the maker are legally responsible for making the payments. The credit rating whether it be good or bad will appear on the file of both individuals. If payments ever fall past due the lender will first try to contact the original maker and if they are not able to get the matter resolved they will contact the co-maker for payments and arrangements to pay.
The lender can go after the co-maker with the same type of collection activities such as collection letters, phone calls, legal action, judgment, and garnishment of wages that they can go after the maker with.
That’s why as a co-maker you want to make sure that you are in a position to pay if the maker does not pay. The reason why a co-maker is needed is that the lender felt the applicant or maker was not strong enough in terms of his credit or income or the amount of time on the job to receive the extension of credit on his/her own. To strengthen the application the lender will require a co-maker.
For all practical purposes, the loan is being granted on the strength or the soundness of your financial stability as a co-maker. So the lender has every right to contact you for payments because as previously stated you did in fact sign the loan documents which serves as a legally binding document between you and the lender.
Some lenders will refinance a loan after a certain period of time and have a co maker’s name removed if the payment record has been excellent. The amount of time varies but it could be after a year or two. All situations will vary from lender to lender. Some may refinance with a substantial amount of money being paid towards the principal balance which decreases the amount of risk the lender is absorbing. The amount of the loan and the type of loan are all things that will be evaluated before this takes place.
To be on the safe side if you don’t feel comfortable with the maker then don’t become a co-maker. After all, if the lender won’t extend them credit then there is a good reason for it.