COLORADO SPRINGS – Whether it’s buying a car, house, or paying off credit cards, you might need someone to cosign a loan for you.
Carl Carlson, CEO of Carlson Financial, broke down the risks the borrower and lender should know before signing the dotted line.
“Don’t do it, okay, that’s number one.”
That’s Carl Carlson’s first piece of advice when it comes to cosigning a loan. However, he knows in some cases there’s legitimate reasons to do it. For example: you’re young, have no payment history, and want to buy a car.
“The banks won’t do it because you have no established credit.”
In that situation you’d need a parent or grandparent to step in, but if someone needs a loan and has bad credit Carlson said, “that’s a little more scary if you’re going to be cosigning a loan for someone that hasn’t been able to pay stuff historically.”
If you’re willing to take the plunge here’s what you should know:
“When you’re going in to something like that really spell out the details of what’s going to happen if someone can’t make the payment.”
If the person you’re helping doesn’t keep up with payments it can really hurt you in the end.
“When you’re a co-borrower, if those payments are made on time, that’s good for both people because it’s going to help your credit report, but the same thing happens if the payments aren’t made on time. It’s on both your credit reports.”
Carlson said having a bad credit score can impact future insurance and loan rates. Something else to consider is the process to be taken off as a cosigner.
“That’s an uphill battle…it’s just because once the banks or the finance companies have something in place they are highly unlikely to give it up.”
Carlson said ultimately there needs to be communication between both parties when cosigning a loan. Make sure you have online access to keep track of payments and have all the necessary documents regarding the loan.
Carlson Financial is a sponsor of Financial Focus.