Q:       What does it mean to be a cosigner?
A:        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?
A:        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.

Q:        What is a payday loan?
A:        A payday loan is a small loan, often between $300 and $500, which is based on your income and requires evidence of a job (paystub). A postdated check is generally required as collateral for the loan, but even without one, you may be able to get a smaller loan. The payback date is based on when you are paid, so it may be one week, two weeks, 15 days or one month from the date of the loan.

Q:        Who provides payday loans?

A:        Payday lenders are for-profit businesses found in every neighborhood. They are in business to make money for their owners and/or shareholders (as opposed to nonprofit organizations, which operate under a mission to benefit the “greater good” and cannot use their funds for anything else).  

Q:        What are the advantages of getting a payday loan?
A:        A payday loan can get you cash quickly, without the credit checks required for other types of loans. Generally, you must provide a postdated check and some verification of income, as well as a phone bill in your name.

Q:        What are some disadvantages?
A:        Payday loans carry an extremely high interest rate, generally more than 300 percent. For example, you might borrow $200 on February 1, and write a $225 check postdated for February 15.  This may not seem like a lot to pay when you are desperate, but the interest rate you are paying is very high for two weeks’ worth of borrowing. If you cannot make good on the postdated check, then the loan might be rolled over, which means you will be paying interest on the original interest amount you owed.

            Also, if you use a postdated check to secure a loan, you may incur an additional “NSF bank” (insufficient funds) charge of $35 if there is not enough money in your checking account to cover your check on the loan’s due date. Payday lenders sometimes submit postdated checks more than once over several days, generating multiple NSF fees and increasing your overall cost.

Q:        Can I pay off a payday loan in installments?
A:        No. These loans are designed to be paid back in a single payment.

Q:        What happens if my payday loan is rolled over and I still can’t pay it off?

A:        The loan will remain an outstanding debt, which means that the payday lender can sue you in court to get the money you owe. It is wise not to roll over your loan, since it increases the amount of money you owe.

Q:        If I’m willing to keep adding interest to my loan, how long can I keep the payday loan money before I have to pay it off completely?

A:        You can roll over a payday loan at least four times, which would give you approximately two to three months to pay the loan off completely.

           

Q:        If I decide that a payday loan costs too much in interest or is too risky, what are my alternatives when I need money on an immediate, short-term basis?

A:        For a less costly alternative, try getting a loan from a bank, a credit union, a finance company, a friend or relative, or asking for an advance from your employer. You might also consider using a pawn shop. Some people have been using auto title loans as an alternative, but the interest rate for an auto title loan is likely to be at least as high as for a payday loan, and you would also be putting up the title to your vehicle as collateral for the loan (meaning that you could lose your car if you don’t pay off your loan).   To get help so that you can avoid this type of problem in the future, you may want to consider getting financial counseling from a nonprofit debt counseling service.  

Q:        I just took out a payday loan. The lender said it would be a criminal offense if I didn’t have sufficient funds in my account on the due date. Is that true?

A:        Because your check was postdated, the lender would NOT expect you to have sufficient funds on the same date you gave the lender your check, and if you don’t have sufficient funds on the due date, the lender could roll over your loan. You would not be committing a criminal offense unless you gave the lender a check knowing you would have no funds to cover it on the due date and you clearly intended to defraud the lender.

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.

Q:       What is an auto title loan?
A:        When you apply for an “auto title” loan, the lender will use the title to your vehicle as security for a short-term loan—usually for a small amount ($500-$1,000). Typically, your vehicle must be paid off or you must have only a small balance left on your vehicle purchase loan to get an auto title loan.

Q:       How do I get an auto title loan?
A:        Auto title lenders use your auto title rather than a post-dated check as collateral for the loan. To get an auto title loan, you would present identification, pay stubs, verification of your street address, a clear title to your car, your vehicle and an extra set of car keys (so the lender can repossess your car without having to tow it, in the event you do not pay back the loan). The lender will assess your vehicle to determine how large a loan your vehicle qualifies you to receive. Next, the auto title lender will put a lien on your vehicle’s title. The lender will keep your vehicle title, but will not transfer the title to the lender’s name. Then, the lender will give you a check, typically payable within 30 to 60 days. The lender will only return your vehicle title to you once you repay the loan in full.

            Some auto title lenders use the credit service organization (CSO) model for auto title lending. This method involves 1) the auto title lender with a CSO license, 2) a third-party lender and 3) the borrower. The auto title lender gets the CSO license from the Ohio Department of Commerce, and offers you an auto title loan provided by a third-party lender. The third-party lender is licensed by the Ohio Department of Commerce to lend under either the Small Loan Act or the Mortgage Loan Act. Under this CSO model, the auto title lender will charge you (the borrower) a brokering fee and the third-party lender will charge you fees and interest on the loan.

Q:       What happens if I cannot make the payment on my auto title loan?
A:        Because you have given your vehicle title as security for the loan, the lender can repossess your vehicle if you do not repay the loan—or the lender may give you the option of refinancing or rolling over the loan.

Q:       What are some advantages and disadvantages of getting an auto title loan?
A:        You can usually get an auto title loan quickly and easily, assuming you own a car and owe little or nothing on your original vehicle loan. There are also very few underwriting requirements, so you are likely to be approved for an auto title loan if you own your vehicle.

            Because you have to put your vehicle title up as collateral to get an auto title loan, your vehicle can be repossessed if you cannot pay back the loan. As long as you carry the loan, the lien will be in place on your vehicle. This means you cannot sell or transfer your vehicle or renew your license. Also, the interest rate for an auto title loan is high. This can be a problem, especially if you have to refinance or roll over the loan. The effective annual percentage rate for an auto title loan is typically 300 to 700 percent.

Q:       What’s the difference between a payday loan and an auto title loan?
A:        Security for a payday loan is a post-dated check, while security for an auto title loan is your vehicle. For both types of loan, the interest generally exceeds 300 percent.

Q:       I don’t want to pay a high loan rate and risk losing my car, but I need money fast. What are my options?
A:        Think about doing the following:

• Shop around for a loan with the lowest rate. Consider getting a small loan from your credit union, bank, family or friends. Even a pawn shop loan can be less expensive than an auto title loan.
• Ask your creditors for an extension. If you are having cash-flow problems, many creditors will give you more time to pay your bills. Ask what they will charge for this service.
• Make a realistic budget and cut expenses, especially if you run short every month.
• Start a savings account.
• Consider getting financial counseling from a nonprofit debt counseling service such as Apprisen (www.apprisen.com).

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, and Ram Mayeker of Apprisen, a nonprofit consumer credit counseling agency, with assistance from David Rothstein of NHS, Greater Cleveland. 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.