WHAT YOU NEED TO KNOW

Canadian Living - - Life & Community Money Talks - STACY YANCHUK OLEKSY IS DI­REC­TOR OF ED­U­CA­TION AND COM­MU­NITY AWARE­NESS AT THE CREDIT COUN­SELLING SO­CI­ETY. FOR MORE IN­FOR­MA­TION, VISIT MYMONEYCOACH.CA.

1 HAV­ING A COSIGNATORY PRO­TECTS THE LENDER.

Ob­tain­ing a sec­ond sig­na­ture on a loan is a riskre­duc­tion strat­egy on a fi­nan­cial in­sti­tu­tion’s part. When a po­ten­tial re­cip­i­ent doesn’t meet the in­sti­tu­tion’s lend­ing re­quire­ments be­cause of credit rat­ing, lack of job sta­bil­ity or in­suf­fi­cient as­sets to ad­vance a loan in that per­son’s name only, the in­di­vid­ual may re­quire a cosigner who does meet the cri­te­ria—some­one with a good credit rat­ing and the abil­ity to re­pay the loan if the re­cip­i­ent is un­able to do so.

2 YOU’RE LI­ABLE.

Putting your sig­na­ture on the dot­ted line means that if your friend or fam­ily mem­ber can­not make a monthly pay­ment, you’re on the hook for it. And if that per­son can’t make pay­ments go­ing for­ward, the re­spon­si­bil­ity be­comes yours. If you don’t de­liver, your credit rat­ing is at risk and your fi­nan­cial fu­ture could be af­fected. Be cer­tain you can af­ford to cover the whole loan if things go side­ways.

3 MIX­ING MONEY AND RE­LA­TION­SHIPS IS TRICKY BUSI­NESS.

Your loved one might start with the best of in­ten­tions re­gard­ing the loan, but life hap­pens. That per­son might lose his or her job, have work hours cut, de­velop a se­ri­ous ill­ness, get di­vorced, close a busi­ness or ex­pe­ri­ence a string of bad luck that pre­cludes mak­ing pay­ments, leav­ing you to carry the load. Con­sider what tak­ing over the loan will do to your re­la­tion­ship; a bit of hon­esty up front could pos­si­bly save you a con­sid­er­able amount of money and heartache later.

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