What are the Responsibilities/Obligations of a Cosigner?
Transcript:
Matt: Hi, Matt McArthur at Clear Counsel Law Group. I recently had a question from an individual who had cosigned on a car loan for a friend. Their question was: If my friend stops paying on the loan, am I legally obligated to pay for that car loan when my friend stops making payments? The answer is simply yes. That's essentially what the lender requires the cosigner for, is it gives the lender the added security that if the individual signing up for the car and the car loan fails to make payments, that they have somebody else on the hook that they can collect against. The reason that they would require a cosigner is they simply don't trust the individual that they are tendering the loan to. In other words, if a car lender won't give your friend a loan because they have poor credit history or they don't have sufficient income, but they will give them a loan with you added as a cosigner, it means that the only reason they're tendering the loan is because they think that they can collect against you if it doesn't work out with your friend.
Unfortunately, you're on the hook if you've entered into one of these center obligations with a lender for a friend or a family member. You want to be very careful if you're still considering cosigning for another person and their vehicle, or their student loans, or any other type of debt. Because if the individual that's primarily responsible for the loan fails to make the payments, the lender can come after you. I see that we have a question, Brian.
Brian: Is there a way for a cosigner to be removed from a loan if the payer has demonstrated the ability to make payments over a period of time?
Matt: That's an excellent question. There is a way. Unfortunately, it usually involves the mercy of the lender. In other words, the lender will set certain criteria. Once that criteria has been met, and the primary account holder has demonstrated responsibility and a history of being able to make the payments, they may voluntarily agree to modify the center to where the cosigner is removed and their financial obligation to back up the loan is taken off of the center. However, you want to be very careful because it needs to be in writing and all parties need to sign off on it for it to be a valid and binding contract modification.
I'm Matt McArthur. I have a lot of experience dealing with cosigner situations, especially when it comes to car loans. If you're caught up in the mess of being on the hook for somebody else's car loan, please come in and speak with me. I'll help you walk through the situation, explain the different options that you may have as responsible party for the loan, and give you the best advice possible to move forward. Look forward to hearing from you soon. I'm Matt McArthur at Clear Counsel Law Group.
