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You may have been approached in the past by a friend or a relative who wanted you to cosign a loan. What they are asking you to do is to guarantee that if they don't pay back the debt you will. You have to really think carefully about this because if they default on the loan then you will have to take responsibility, and do you really have enough financial status to do so? This means that you not only have to pay the full amount of the loan, but you have to pay all the late fees and collection cost that appeared on the loan when your friend or relative did not pay.
Unfortunately the bank or lender will try to collect the debt from you first before collecting from the borrower. They will even use the same methods of collections that they would use on your friend who took out the loan. Because your friend or relative did not pay the debt back your wages could be garnished and your credit history could be damaged. Research has shown that there is a higher percentage of debts paid back by the cosigner than by the original borrowers themselves. This percentage is around 75%. You have to think about what is going down. If the bank does not trust this person because of their credit past or credit history, then why should you?
In many states the law demands that the bank can come to you to collect payment the first time your friend or relative misses the payment. Not only will you have to pay back the entire debt, but you will also have to pay back any interest, fees, and lay charges. If the lender goes to court, you will also be liable for attorney’s fees and any lawsuits that the judge may award for bank. Your property, even though it was not put in as collateral for the loan, can be taken by the court and this includes your car, your house, and any other personal possessions you have of worth.
Some circumstances may warrant that you need to cosign a loan for a friend or relative. Make sure that you have enough money to pay back the loan and any other fees associated with it. Before you put down any personal property as collateral, make sure that you know you may lose that property. It might be prudent to ask the lender to calculate how much money you would owe if the friend or relative defaulted on the loan. You may have a clause put into the loan contract that will state that you will pay for the loan and not be responsible for any fees that are incurred. You may also want to put in a clause in the contract that states that if the borrower does default on the loan that you will have time to readjust your finances to pay the loan back. Without these safeguards put in to place you may be setting yourself up for a financial loss, losing property, and bad credit.
This situation is similar to secured loans where homeowner loans are secured on your property. Once again if you default on the loan then you can also lose your property.
Credit reports are often viewed with dread, especially when you find yourself with problems getting credit or managing your debt, but in fact they can be very helpful and useful tools not only for lenders but also for borrowers.
Most countries have a credit reporting system and in the United States credit reports are maintained by three major agencies - Equifax in Atlanta, Georgia; Experian in Allen, Texas and TransUnion in Chester, Pennsylvania.
A credit report is simply a history of the credit you have, or have had, going back over the past several years and includes details of everything from home and car loans to your credit card accounts. Entries on your credit history will show such things as when a loan was taken out, how much that loan was for and whether or not payments have been made on time and are currently up-to-date. The report will also list some personal information such as your current and previous addresses, telephone number and social security number.
The information contained in your credit report is then available to lenders such as banks, mortgage companies and credit card companies and, if you apply for further credit, a lender will use your credit history as the basis on which to make his lending decision.
One of the problems with credit reports is that, while every effort is made to ensure their accuracy, mistakes are made from time to time and it is possible that you might be refused credit because your credit report does not accurately reflect your credit history. This can be extremely annoying to say the least but there is action which you can take to correct this and, more importantly, to avoid it happening in the first place.
The law requires that, on request, you are provided with a copy of your credit report free of charge once a year and, as part of your own annual financial review, you should always ask for this free report. This gives you the opportunity to spot an error on your report and to ask for it to be corrected before it becomes a problem. Correcting an error is simply a matter of establishing proof of the error (for example a statement from a lender showing that a payment marked on your credit report as being late was in fact paid on time) and then sending this by registered mail to the credit agency with a request that they amend your record.
Another very good reason for requesting a copy of your credit report is that, if you have been having debt problems, it can give you a very good basis on which to build a plan to not only clear your debt but also to re-build your credit history. Although just how you go about this is beyond the scope of this particular article, there is a very strict timetable for recording debt on your credit report and your report will point to debts which you should clear first and to others which can be put to the bottom of your list.
If you have never seen a copy of your credit report then you should request your free three bureau credit report package today. You might be surprised at just what you can learn from it and how helpful it can be in planning your future requests for credit.