Beware Co-Signing A Loan

22 Aug

MetroBoston, Publication Date August 22, 2012
By Attorney George Warshaw

It’s a common occurrence. Your son, daughter, relative or friend is buying a house or condo and can’t qualify for the loan without help.

He or she asks, or you volunteer, to co-sign the loan. After all, you’ve got good credit and good income and you’re happy to help out.  Problem solved.

But is it a good idea?

Not usually.

When you co-sign a loan you sign on not merely to help; you place your income and more importantly your credit on the line. If the borrower fails to make a payment, it shows up on your credit report – and you become responsible for payments.

If you want to refinance your house or get a car loan, it’s a debt that shows up on your credit report. If you have too much credit outstanding, you may get declined for a loan or may have to pay a higher interest rate – just because you helped someone out.

Google the story of Sibylla Nash (“The Mistake that Plunged My Credit Score 200 Points”) who helped a friend. When the friend missed three payments, Ms. Nash’s credit was ruined – and she had to pay her friend’s mortgage!

So think twice (or three times) before you co-sign a loan – and speak with a lawyer before you do. 

More next week © 2012 George Warshaw

George Warshaw is a real estate attorney and author. He represents buyers and sellers of homes and condos in Massachusetts, and prepares wills, trusts, and estate plans. George welcomes new clients and questions at metro@warshawlaw.com.

 

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