Why a cosigner may be needed
When a borrower does not have a credit score, has a credit score that is too low, or if the borrower is a minor, a cosigner is needed to help the borrower obtain approval on a loan. Most often, cosigners are needed for consumer loans such as vehicle purchases. Cosigners agree to pay if the main borrower fails to pay on their loan.
Know the risks
When cosigning on a loan with a family member or friend, you may not realize that it could negatively impact your credit score if the borrower is delinquent.
Financial institutions may seek to collect from you (the cosigner) for any missed regular payments or late fees. The borrower’s late payments could also impact your ability to borrow for yourself in the future, even if you previously had a strong credit score.
Financial institutions and creditors report to the credit bureaus each month, and over time missed payments will be reflected on both the borrower and cosigner’s credit reports.
If you agree to cosign on a loan, be mindful of the possible long term impact to your personal financial strength.
For more information, contact a Western State Bank Mortgage Loan Officer today.