Am I on the hook if I co-sign a loan?
Often an individual signs a document – let’s use a car purchase agreement and associated lending agreement for example – that only includes the purchaser’s name. In that case, the individual’s responsibility for payments and adhering to the lending agreement are clear-cut.
Changing the scenario a bit, let’s say the purchaser has less than stellar credit, and the lender requires that someone cosign or guarantee the purchaser’s loan. Because you have a great credit score, the purchaser gives you a call and asks you to cosign the lending agreement; being the good friend that you are, and without hesitation, you head over to the dealership and sign on the “X”. Now, the lender can not only pursue the purchaser if he or she fails to make payments in accordance with the lending agreement, but the lender can also come directly after you – the good friend who cosigned the loan document.
The moral of this story is really quite clear – always be sure you understand that, as a lender requires an additional signature as a means to ensure that it gets paid, you very well may be risking your personal assets and financial well-being whenever you cosign or guarantee any document.
By: Attorney Jonathan Gelber