December 9, 2016
It was once common for friends and loved ones to help each other by co-signing a loan, whether this was a small personal loan or something larger, like a mortgage. Those days are over, though, with lenders demanding greater obligation from co-signers. The term co-signing is now known as co-borrowing, and the responsibility for repaying debt falls on both parties.
Co-borrowing is a huge commitment and Americans must realize that they are responsible for that debt until the loan is paid. This can also have a negative effect on credit scores. For example, helping your child to purchase a home might seem like a good idea, but if they miss a couple of repayments, it can affect your credit score as a co-borrower. You can check your credit score and read your credit report for free within minutes using Credit Manager by MoneyTips.
There is no hard evidence on how many people’s credit scores have been affected by late mortgage payments on co-borrowed loans. Industry expert Matt Schulz said that other loans, such as personal loans, student loans, and auto loans, give an overall view, with roughly a third of co-borrowers claiming that it damaged their credit score. He adds that several people do not realize the long-lasting consequences of missed payments or other mistakes. “When you co-sign, you’ve got about a 40 percent chance of losing money and about a 25 percent chance of damaging the relationship with the person that you co-signed with,” said Schulz.
This is not to say that co-borrowing is necessarily bad. It is vital, however, for anyone considering co-signing a loan to assess the risks and understand the potential consequences.
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