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Co-signing a loan can put you at risk for creditor harassment

Of course you want the best for your loved ones, including their financial security. If you have the chance to help a close relative improve his or her credit, it’s natural to want to do everything you can to help. However, if you have a child or close friend asking you to co-sign a loan, you’ll want to proceed with extreme caution. Co-signing a loan is a risky move that can ruin your own good credit, put you into credit card debt or other forms of debt that aren’t your own, and make you liable for other financial penalties.

There is good reason to be wary of co-signing a loan, no matter how much you feel you can trust your loved one, since a Federal Trade Commission study revealed that 75 percent of co-signers end up repaying the loan themselves. This can be bad news for Florida residents who are already struggling with financial challenges. If the loan falls into delinquency, you would be held responsible for the payments, as well as late fees and other penalties assigned to the loan. In addition, all negative activity on the loan would be sent to credit reporting agencies.

If you agree to co-sign on a loan, it can help to fully understand the risks, as well as outline some ground rules for the person you’re helping. As a final precaution before signing, see if there is a way to exit the loan later if the payer has established a good record of keeping up payments for a certain period of time. Entering into a co-signing agreement can have serious consequences, and should never be taken lightly.

Source: Deseret News, “5 things to know before co-signing a loan,” Brian O’Connell, July 17, 2013

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