What Does it Mean to Co-sign a Loan?
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Adding your name to someone else's debt on a loan is a very serious financial step. Here are some things to consider before you co-sign a loan:
- When you co-sign a loan, you are signing a legal contract. If the borrower does not repay, it can be reported on your credit record.
- If the primary borrower gets behind in payments, the lending institution can hold you and the borrower each equally responsible for repaying the entire debt. If it goes to a collection agency, the agency will try to collect from you.
- Even if the loan is repaid on time each month, another lending institution may consider the amount of debt that you co-signed when determining if you already have too much credit.