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the asset. Moreover, the entire debt is listed in each co-borrower’s credit report since, ultimately, each is responsible for repayment of all of it. This can affect credit ratings and debt-to-income ratios. If one co- borrower can’t come up with their share of the loan payment, the other co-borrower(s) must pay it or risk damage to their own credit. It’s no different buying something on credit with a spouse. Although spouses have separate credit histories and credit scores, debts applied for jointly are 100% each spouse’s responsibility and are included as such in their separate credit reports. Pre-marriage debts, however, such as student loans, are not re- characterized as co-debt after marriage. They remain the spouse's separate liability. Co-signer. At some point in your life, you may be asked to co-sign a loan, a lease, or other financial obligation . Some people co-sign loans for friends or a family member whose income or credit history isn’t strong enough to enable them to get a loan on their own. For example, parents often co-sign a lease to help their son or daughter rent an apartment. Being a co-signer is different than being a co-borrower because the funds borrowed and the item purchased are not for your benefit . In other words, a co-signer does not have an ownership interest in the thing bought with the borrowed money. Nevertheless, the co-signer has equal responsibility for repayment of the entire debt. Many people get themselves into financial trouble by co-signing a loan for a less financially responsible person. If the person they cosigned for misses a payment or defaults, the lender can seek repayment from the co-signer. Likewise, co-signer status appears on your credit report and can negatively impact a co-signer’s credit score. People often trust the person they co-sign for to make payments on time and as agreed, and fail to monitor the loan. Unfortunately, they find out about late and missed payments only after the damage to their credit score has been done. If you cosign a loan, be vigilant! Monitor the borrower’s repayment, ask for access to the loan account and copies of all statements and documents from the lender. If someone, such as a parent, is nice enough to co-sign a loan or lease for you, be aware that your delinquency or default can be very damaging to their credit. If you are having trouble paying, let them know right away. Guarantor. A guaranty is a promise by a person who is neither a borrower nor a co-signer to repay all or a portion of the loan in the event the lender is unable to satisfy the debt through the borrower . A guarantor “guarantees” that a loan will be repaid. Lenders sometimes ask for a guaranty if they feel a loan applicant’s credit isn’t strong enough. It’s like the lender’s back up plan. Guaranties are often secured by collateral such as the guarantor’s home. If the borrower defaults, the lender must try to collect from the borrower. If they are unsuccessful, they come to the guarantor for payment. People often sign a guaranty to help friends and family get access to loans or to enable them to get a loan at a lower interest rate. Sometimes people guarantee a loan to their business using their personal assets as collateral. In these cases, if the friend, relative or business cannot repay the loan, the guarantor is responsible. Reflect on Learning: Do you understand the differences between co-borrowing, co-signing, and guaranteeing? Do you understand the financial risks of being a co-borrower, co-signer or guarantor? Under what circumstances would you agree to be responsible for some one else’s debt? If someone co-signed for you, would you be a co- signing risk? PRODUCT PREVIEW Parents do not cosign federal student loans. Generally, the student is the only person responsible for repaying their educational loans. However, Federal PLUS and private student loans may require a parent cosigner.
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