A loan cosigner accepts responsibility for paying the loan if the primary borrower cannot or does not make payments as agreed. The cosigner must typically participate in the same underwriting process as a primary borrower and must be willing to disclose significant credit, income, and employment information as part of the loan process. In situations where the primary borrower fails to make payments, the lender has the right to pursue the loan cosigner for payment. The lender can use any collection method that is both legal and necessary for loan collection, including the use of collection agencies and filing a lawsuit against the cosigner. A cosigner's credit history may also be affected by the primary borrower's a failure to make timely payments on a loan.
There are a number of reasons why somebody may need a loan cosigner. The most typical reason is that the borrower either does not have sufficient credit or financial resources to qualify for a loan. In some cases, the borrower may qualify for a loan but at a relatively high interest rate. By bringing in a loan cosigner, the borrower can reduce the lender's risk and may be able to secure the money that he or she needs on good financial terms.
After someone agrees to be a loan cosigner, he or she will typically need to work with the lender to establish that he or she is credit worthy. This process may involve a verification of the potential cosigner's employment and income to ensure that the cosigner has the ability to make the payments if the borrower does not. The lender typically also reviews the cosigner's credit history to understand how much debt the loan cosigner currently has and whether the cosigner has a history of making timely payments on his or her own debts.
Unfortunately for a loan cosigner, he or she may be placed in a position where he or she is responsible for the entire amount of a debt should the borrower default. Even worse, a loan cosigner may not even be aware of the default until a debt is very overdue and the lender is ready to go to court. In such cases, the cosigner may be in a position where he or she has to pay off the debt balance immediately or risk facing a lawsuit and other collection activity. If the cosigner is sued, the cosigner may be subject to various judgment collection activities, such as wage garnishment or asset seizure. If the cosigner is unable to pay off the primary borrower's debt, the cosigner may be in a position where he or she must file for bankruptcy in order to escape an unpayable debt.