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questions & answers

Question: question if a person co-signs a loan for a new car and the person has the car defaults on the loan payments is the co-signer now responsible for payments and if so what options does the co-signer have.

Answer:

A co-signer is agreeing to certain financial responsibilities regarding the loan.  Unfortunately, you cannot get out of being a co-signer once you've signed unless the lender lets you out; you remain responsible until the loan is fully repaid.  As a co-signer you are taking on the risk and responsibility to pay the loan if the original borrower defaults on the payments. It might seem a bit unfair, but it is the purpose of the co-signer.

When considering co-signing a personal loan for a friend or family member, there are things that you might want to have a full understanding of, such as the terms of the promissory note, which will probably include any penalties and fees that you will be responsible for if the primary borrower defaults.  Also included should be the rate of interest you must pay, and exactly how much time the bank allows before contacting you for payment. Generally, when you agree to co-sign a loan, the information regarding the loan will be on your own credit report.

Co-signing a loan may also affect your ability to obtain loans for yourself because you have taken on the obligation to pay the loan. Lenders ask for a co-signer when they do not want to take on the full risk of loaning money to that particular borrower. Read the terms of the loan and consider carefully whether you wish to take the risk of co-signing.

You might also consider an agreement with the person you are co-signing for in the event of a default.  For legal information specific to your circumstances you may wish to consult an attorney.

http://www.consumerfinance.gov/askcfpb/745/what-is-a-co-signer.html