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George Guerin discusses the perils of cosigning on PolicyGenius.com

George Guerin discusses the perils of cosigning on PolicyGenius.com

The following content originally appeared on PolicyGenius.com on October 6, 2016.


Cosigned a relative's loan? Here's how to deal with the default

By Paul Sisolak

Cosigning is one of those instances where acting on your emotions can place your finances at risk. You really want to help that family member, friend or loved one get approved for a loan they may not qualify for, so deciding to cosign for them can seem like an act of generosity when their chances of obtaining new credit are next to nil...

“If you’re the cosigner, you’re the co-borrower,” says Certified Financial Planner George Guerin. “You’re on the hook from it going into default. You have only one choice: Make the payments.” Thus, your most basic solution is to chip away at the debt yourself in any way you can.

... Before debt, delinquency or default ever enter the picture, carefully examine if cosigning is the right thing for you or the person you’d like to cosign for.

“If there was ever a thing to avoid, it would be not to cosign at all for a relative or friend,” says Guerin. “Circumstances change.”

If it’s a non-relative, or someone you don’t know well, Guerin recommends taking a conservative approach to ensure cosigning is the right decision for you. “I would pull their credit score,” he says. “Somebody who has a bad credit score, there’s a reason they do.”

If they have a poor FICO score, ask them about it. Don’t be accusatory, says Guerin, but if excuses are made, you may reconsider if you want to place your finances and credit at risk.

With a close family member, you may be reluctant to cosign, but you still want to help. Guerin says that fronting some money for a down payment may be a good alternative to full-on cosigning.

“It sometimes looks like tough love,” he says, “but it’s a difficult world, especially when you’re taking on someone else’s liability.”

Going into the situation with a clear perception of what cosigning is can alleviate the financial and personal strain that can be created if anything goes awry with repaying the debt. Straightforward as it may seem, misconceptions abound when it comes to the real nature of a cosigning agreement...

Click here to read the full article on PolicyGenius.com

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