Friends support each other through difficult times, but you’ll rarely see friends willing to cosign a loan. There’s a good reason for that. In any relationship, money matters can complicate things. When your friend asks you to cosign a loan for them, they’re asking you to take on a big responsibility.
Anyone who cosigns a loan application agrees to be legally accountable for the loan amount and any additional costs if the primary borrower cannot make payments. Helping a good friend obtain funds for something important may seem like a no-brainer, but cosigning a loan can be a risky financial decision.
Your Friend’s Missed Payments Will Show Up on Your Credit Report
As a cosigner, you agree to be included in the responsibility for your friend’s loan. As a result, their loan and that loan’s payment history will appear on both you and your friend’s credit reports. Should they miss any payments, your credit score will also take a hit. Because payment history is the factor with the most significant impact on credit scores, any missed payment could severely damage your credit.
Your Friend’s Loan Could Limit Your Access to More Credit
There are times when we need more credit. You may want to get a credit limit increase, a new credit card, or a loan for one reason or another. When lenders look into your credit information to consider giving you more credit, they consider every aspect of your credit.
One of the main factors that will impact the success of your application is the presence of pre-existing debt. After calculating your total debt levels, the lender may conclude that extending you more credit would be too risky, resulting in you being denied that credit.
The Lender Could Sue You If Your Friend Defaults on Their Loan
According to the Federal Trade Commission, borrowers who miss consecutive payments may be subject to legal action. Their lender may try to recover the money from the cosigner through a lawsuit before going after the primary borrower. As the cosigner, you’ll be held accountable for all charges and attorney’s fees if you are sued for nonpayment. If the lender wins a judgment, they can pursue a wage garnishment against you and your friend.
Consult a Debt Lawyer about the Risks and Benefits of Cosigning a Loan
You may want to do your friend a favor, but before making any major financial decisions, it’s always best to consult a professional to get advice on what position is ideal. Debt of any kind can have a significant impact on every aspect of your life, so it’s best to understand what exactly you would be getting yourself into if you were to cosign your friend’s loan.
Talk to an experienced debt lawyer at McCarthy Law to understand your rights and responsibilities in cosigning your friend’s loan. You can also discuss your legal options for addressing any potential issues that may arise with the debt. Protect your financial health and friendship by sitting down and carefully considering the ramifications of your decision. Schedule a free consultation with us using our contact form or by calling our firm at (855) 976-5777.
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