ramifications of cosigning a loan.

Chemocurl zn5b/6a IndianaOctober 9, 2006

Recently DBF cosigned a loan for a family member, at his bank. It is what you would call, an unsecured loan, as there is nothing being used as collateral.

When the bank checked DBF's credit report, she said, "Wow, that is the second highest one I've ever seen."

He believes the family member is making the payments on time, and hopes she is even paying them early, and even paying some extra.

In the event she messes up (late payments)at what point can it affect his credit? If they come after him for late or missed payments, will it be too late? He is very aware that he is responsible if she does not pay.

He thought about calling the bank and finding out just how she is doing on it. Can he do that?

He is a little uncomfortable with just getting a reply of "I'm paying it", if there was any chance of how she was paying it being able to affect my record. He doesn't want to be constantly asking for proof or anything like that.

The loan is set up for 3 years, and a lot can happen in 3 years. He believes she is good for it, but just a bit concerned that she may not realize just how important making payments on time are...that and maybe making some payment 'ahead', or saving for making some emergency payments, in case she is unemployed. She is young and starting out in the working world, is a temp employee, and has had no responsible fiscal upbringing whatsoever.

Is there anything he can do to put his mind more at ease for the next 2 1/2 years (the remainder of the loan)? He is wanting to help her establish some good credit, as she has nothing but a school loan which got delinquent, but he doesn't even know whose name was on that.

DBF does not want to pry or appear distrustful, and does not want to appear to be 'in her business'. If I had signed, it would have been known up front that I would be in her business...just a small price to have a cosigner with good credit, getting a good interest rate.

Sue... who doesn't know when to use affect or effect

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yes, he can and SHOULD call the bank to verify payments are made on time. if the bank reports it as late, it will also be reported on his credit at the same time. since his name is on the loan, he can check every day if he wants.

If she starts to pay a little late, then HE should make the payments and have her pay him back. this way he knows that they get there on time.

if the bank has online access, i suggest that he get it setup so he can check the account at his leisure. this way she never has to know unless there is a problem.

    Bookmark   October 9, 2006 at 10:50AM
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In my 30 years in the credit industry I only have one thing to say about co-signing
Don't, don't oh yeah don't.
I know thats more than one word but I think you get my point.
When you co-sign you are putting your good credit in someone else hands.
"DBF does not want to pry or appear distrustful, and does not want to appear to be 'in her business'"
Due to the fact that she has gone delinquent in her student loans gives her a not to great track record. I would do as davidandkasie suggested
also let her know he will be on top of this. and once she has a permanent job and has been paying on this loan for a year they need to check out getting a loan in her name only to pay this one off.
The only good thing is they don't report till the account is 31 days past due so your DBF will be able to "catch" up if she doesn't pay.
Sounds like you have a wonderful DFB

    Bookmark   October 9, 2006 at 11:08AM
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In my opinion, if his name and credit are tied into this loan, he has every right to check to make sure she's paying it. In his shoes, I'd probably check with the bank every 2-3 months to make sure the payments are current.

Problem is, anyone who needs a cosigner, probably isn't as responsible as they should be, or they wouldn't be in that position in the first place.

Another thing he probably should do immediately, just to be on the safe side is re-read the loan papers he signed. I've heard of several cases lately where someone THOUGHT they were cosigning for a friend/relative, but in actuality, the lending institution switched the names on the document, so that the co-signer was actually the borrower. They do it because the co-signer usually has better credit than the actual borrower does. Hope that hasn't happened to your BF, and that he read the papers carefully before signing, but it never hurts to go back and re-read what you've signed, just to be sure.

I'd make one really strong suggestion to you. If this were my boyfriend, I would NOT comingle my finances with his until this loan is satisfied, and his credit is clear again. You don't want to be pulled into this, if it goes bad along the way. And you want to be short resources for living, if it does.

    Bookmark   October 9, 2006 at 11:22AM
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If the co-signer has a copy of the loan papers, couldn't the co-signer log onto the lender's website, look up the loan and see the payment history? We do that with our mortgage all the time to make sure they apply payments properly (we're paying extra principal). With the loan number, you should also be able to call/visit the lender and ask for the payment history.

    Bookmark   October 9, 2006 at 1:12PM
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Could he suggest to her that she set up an automatic payment from her bank?

Or another option: he could make the payments and have her pay him directly.

All the professional advice is not to co-sign loans for family members, although I have to admit, my mother did it for me. I was extremely responsible, though broke, and she knew that, so she wasn't worried about it. It enabled me to buy my first house and it all worked out.

If you want the relative to have the money, better just to give it to them with the understanding that you may never get it back.

    Bookmark   October 9, 2006 at 1:31PM
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here is a great article from bankrate on cosigning

Here is a link that might be useful: thinking of co-signing

    Bookmark   October 9, 2006 at 5:57PM
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Chemocurl zn5b/6a Indiana

I relayed all the wonderful input from all you wonderful folks here. He had not really thought through the ramifications of her paying late, and him not even knowing it. He said he will stop by the bank tomorrow and check into viewing the account on line. He has no computer, so I can/will keep a close eye on things for him...he knows he can count on me for that.

Like I said, she has had no responsible fiscal upbringing whatsoever, but we won't go there. Here is what happened with the school loan...she was a pay as you go student because her and her mom did not apply for student loans or grants. They alledgedly filled out the paperwork and then heard nothing, and did not check into it. The last semester she attended, the money wasn't paid b4 classes started, and the school let her finish the semester without paying but are now holding her transcripts. While attending college, she was a student, and mother to her little brother, in fact she has raised him the past 5 years while being a student and doing home chores as well. She had a pretty full plate, and did well at it all. She is now paying off the loan.

After she has had a job for a year, (and hopefully student loan paid off) she still wouldn't be able to get an unsecured loan, could she? She recently bought a car for $1100 cash...DBF and I 'found' it for her, so he could get his 'extra' truck back.

Yes, I have a wonderful DBF...have had him for over 25 years now. He is the world's best BF, I think.

Above explains a bit why she needed a cosigner. He explained the situation to me, and I understood why he did it. She has no one else to turn to, and had he not been available in the emergency, I would have helped her out too.

We don't comingle our finances. He is secure, and will be even if he has to pay the loan off himself. The most we mix things up is who is buying dinner, and who is leaving the tip.

I hope we find out she is paying extra on the principal, but think it also important for her to maybe make a payment or 2 ahead, or hold that much in savings, in case she ends up without a job for a bit. I know some folks don't look past today when it comes to finances, and never has any concerns for the many things that 'might' happen.


We shall see just how 'good' she is doing, and then he can coach her, or make a decision on what to do. As I explained to him, the only example her mom set for her was a bad one. Her dad is not active in her life. Uncle is trying to look out for her, and I told him he should help her by explaining some financial things to her. She has no one else to explain all this stuff to her, and only recently had her own checking.

He not only wanted to help her with the emergency, but wanted to help her start to build a little 'good' credit.

My dad signed for me back in 67 for my first car...$800, and that was all it took, to get me on my feet financially


    Bookmark   October 9, 2006 at 6:11PM
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Chemocurl zn5b/6a Indiana


The loan was for $6000. Anyone want to ask what kind of an emergency the young lady had?

Anybody want to guess? I'm guessing no one could guess in a thousand years.


    Bookmark   October 9, 2006 at 6:23PM
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Well, I think we're all too polite to ask.

    Bookmark   October 9, 2006 at 10:04PM
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plastic surgery
dental work
hey you never know what some people consider an emergency :)
sue - it seems as if your DBF is helping her understand how to be a better money person
kudos to him

    Bookmark   October 10, 2006 at 6:17AM
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chemocurl ... old friend?

How about having the gal over for a meal with both of you some time, with the understanding that there be some extra time involved, and explain some of the ramifications to her?

Not just "explain" ... "discuss" - asking for her input, and opinions and feelings.

Please pass on to him my appreciation of your BF's generosity and concern for others. If there were more like him, we'd have a happier society, but our concrns have turned more to "things" than "people" recently.

Often we seem to be judged more for what we have than who we are.

Hope things go well with all of you.

ole joyful

    Bookmark   October 13, 2006 at 4:43PM
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Chemocurl zn5b/6a Indiana


That sounds like a wonderful idea. B4 I knew anything of the loan (BF did not tell me for about 6 months) I knew that the gal (as you say) was working a lot of overtime, in fact, all that was offered to her.

I half jokingly and half seriously told her I would be more than happy to help her with investing 'all that extra money'. I knew she knew nothing at all about investing. Her quiet reply was ,"I don't have any extra money because of that other thing."
I just said "oh" and left it at that, because I assumed it was the school loan she was referring to.

She thinks DBF and I are rich...just because we can buy what we want, take vacations, and pay cash for everything. All she has ever seen is her mom making sure on Thursday night that every cent of the previous weeks check was spent, because there would be another one the next day.

It would be nice to discuss with her how she can work toward being comfortable and 'secure'....how all the little unneccessary things really add up to a lot of money...how, if she doesn't waste it, she will have money for the things that are really important to her.

I told DBF of asking about this situation here and about all the input you wonderful folks have given me.

I will tell him what you said, oj.

OK...drum roll...what was the money needed for? A vet. Her show horse that she has had for about 5 years needed emergency surgery or it would have died. The vet asked for 2k up front, so she called and DBF had her put it on a credit card. The remainder of the bill was $4000, and they went a few days later, and took the loan out and then paid off the credit card, and paid the vet.

It was her decision. It was a tough grown up decision she had to make, but it is what she chose, and I'm sure she is not regretting it. She now knows just how expensive pets can be, besides feeding, and regular health care.

The horse is fully recuperated, and I saw her on him last weekend. She was enjoying the investment she made in her 'pet'.

Thank you all for your many replies.


    Bookmark   October 13, 2006 at 8:39PM
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Just my two cents... anyone that needs a co on a loan should be ran away from. Co signer usually left holding the bag.

    Bookmark   October 20, 2006 at 4:56AM
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Perhaps this can be a good lesson for her in being financially responsible. Since her mother didn't do it, it will be a real blessing to her for you & your BF to teach her.

I generally agree about not co-signing loans with others, but it depends entirely on the circumstances & the people involved. My dad didn't co-sign a loan with DH & me, but he did put up the collateral. We had business debt as well as our mortgage. The payments would be much less if everything was consolidated, but we didn't have enough collateral to do that. My dad helped us out so much by doing that.

    Bookmark   October 21, 2006 at 5:54PM
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IMO I think it was a very good reason
and I agree with OJ that with the 2 of you she has a chance to "learn" that you don't have to spend every penny.
How lucky she is to have you both in her life :)

    Bookmark   October 24, 2006 at 7:30PM
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