Monday, June 9, 2014

Should I Be a Cosigner?

Q:       What does it mean to be a cosigner?
A cosigner is someone who signs a loan or contract, such as a lease, along with another person. By signing one of these documents, the cosigner agrees to be responsible for repaying the loan or fulfilling the contract.

Q:       What are the reasons to be a cosigner?
A:        You might decide to be a cosigner to assist someone, often a friend or relative, whose credit rating or employment history will not let that person get a loan or a lease without a cosigner.

Q:       What are the risks of being a cosigner?
If you have cosigned a loan or a contract for your friend, and your friend later defaults on the obligation, the lender or landlord can sue you for the entire amount of the debt, not just half of it. If the court holds you liable for the debt, it may order your wages to be “garnished” or your bank account to be “attached.” This means that money will be deducted from your wages or your bank account until the debt is completely paid.

Q:       How does being a cosigner affect my credit rating?
A:        A cosigned loan will have the same effect on your credit rating as a loan you take out yourself; it adds to your total outstanding debt. A default in payment will also affect your credit rating the same as it would if you were the only borrower.

Q:       Does the creditor/landlord have to try and collect from the party for whom I cosigned before they try and collect from me?
A:        No. The creditor or landlord is not obligated to try to collect from the other debtor. The creditor/landlord can and will try to collect from whoever is most apt to fulfill the obligation, which is likely to be you.

Q:       Are there differences between cosigning a loan and cosigning a lease?
A:        There can be. When you cosign a loan, it is for a definite amount of money, plus interest, according to the terms of the loan. When you cosign a lease, however, there may be language in the lease that makes you as the cosigner liable for periods of time in which the lease is renewed, which could lead to greater liability than you anticipated.

Q:       How can I decide if becoming a cosigner for a friend is a reasonable risk to take?
A:        Anytime you cosign, you are taking a risk. If, for example, a landlord or lender thinks a cosigner is necessary, this is a warning sign for you. You can certainly ask your friend about his or her employment status, but the risk is still there. With a lease you can at least try to limit your liability to a fixed period of time, so it is not totally open-ended. Ultimately, however, being a cosigner can cause you to lose not only money, but also a friend.

This “Law You Can Use” column was provided by the Ohio State Bar Association. It was prepared by Akron attorney Terry Zimmerman of Kaffen & Zimmerman. Articles appearing in this column are intended to provide broad, general information about the law. Before applying this information to a specific legal problem, readers are urged to seek advice from an attorney.

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