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Co-Signing Loans - Risky Business

What are the risks of co-signing a loan?

Co-Signing Loans - Risky Business

The information on this website is general in nature and does not take into account your objectives, financial situation, or needs. Consider seeking personal advice from a licensed adviser before acting on any information.

There may come a time in your life when you are asked to co-sign for a loan or credit card. If this is the case, there are several things to consider before making a final decision. Technically, you are putting yourself at risk of damaging your own credit in the event that the loan goes unpaid.

The vast majority of individuals, seeking a co-signer fully intend to make timely payments. Unfortunately, good intentions are sometimes interrupted by unforeseen problems and situations.

Your Credit Rating

Typically, when you co-sign a loan it makes it more difficult to get credit yourself.

This is because lenders take into consideration the cosigned loan, when figuring out your debt ratio.

Depending on the size of the loan, it could very well put you over your limit.  If you are asked to co-sign a loan with an open line of credit, consider it very carefully before making any decision.

No Control

As the cosigner you will have no way of controlling the spending habits of the individual who will be making the purchases.

They could easily tell you they will only be spending $1000 when in reality they spend 10 times that much.

There are certain lenders who will agree to initially freezing a line of credit, if it is requested.

In this case scenario, there is less risk involved. In many cases cosigners are not notified until the loan actually defaults.

The Great Aussie Truck Buyer's Handbook: A Practical Guide to Heavy Vehicle Finance

The Great Aussie Truck Buyer's Handbook: A Practical Guide to Heavy Vehicle Finance image

Buying or financing a truck in Australia can affect more than the monthly repayment. The loan structure, fees, deposit, balloon payment, vehicle age and intended use can all shape cash flow and total borrowing cost. This practical guide is written for sole traders, tradies, logistics operators, fleet managers, small business owners and personal truck buyers comparing truck finance options. It explains commercial and personal truck loans, leases, chattel mortgages and hire purchase arrangements in clear, general terms. Inside, readers will find repayment factors, eligibility considerations, cost checklists, planning examples, case studies and questions to ask before making an informed finance enquiry.

This obviously causes a problem, because it may be too late to rectify the situation.

It is wise to ask the lender if you will receive a duplicate statement or be given the ability to check payment status by phone.

If the answer is no, think twice before signing on the dotted line.

Before you Commit

Unfortunately, individuals who require a cosigner either have no credit or bad credit.

Although those with no credit history are probably more apt to make timely payments, there is still no way to be sure.

Individuals with bad credit may be prone to the same habits that resulted in a bad credit rating, in the first place.

When it comes right down to it, cosigning a loan is risky business, no matter how close you are to the borrower.

Before you commit yourself it is important to ask yourself if you can pay when your friend can't.

Published: Monday, 23rd Aug 2021
Author: 91

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Prime Rate:
The interest rate that commercial banks charge their most creditworthy customers.