From 3 On Your Side
PHILADELPHIA (CBS) – In these tight economic times, it’s harder than ever to get a loan, so some people are leaning on cosigners to get approval for the money they need. But as 3 On Your Side Consumer Reporter Jim Donovan tells us, you may want to think twice.
When Nicole Navretil’s friend couldn’t secure a student loan on her own, Nicole agreed to co-sign. She says, “I thought, if I could help someone get their education I should, and I didn’t ever foresee there being a problem with it.” Little did Nicole know that her friend would stop paying and the creditors would come after her instead. garnishing her tax returns and ruining her credit. She says, “Never in a million years dreamt that somebody that I trusted would move away, stop making payments and not even bother to return my phone calls.”
But it happens a lot more than most of us would think. Thanks to our current economy, according to the Federal Trade Commission, on certain types of loans, as many as three out of four borrowers now default on their obligations, leaving the co-signer stuck with the bill. Malini Mithal, Assistant Director at the FTC says, “You need to keep in mind that you’re being asked to take on a risk that a professional lender will not take.”
When you co-sign you’re acting as more than a reference, you’re technically acting as a co-borrower. According to Mithal, “If you don’t have the funds to repay the loan they can take you to court, they can seize your possessions, they can garner your wages-they can even add on late fees and attorneys fees for the cost of the loan.”
Even if they don’t default – co-signing will impact your credit. Mithal says, “It will look like you have a larger amount of obligations than you really have for yourself and it might hurt your ability to take on credit that you need for yourself.”
As for Nicole, the government garnished part of the debt and her friend finally paid back the loan. But it’ll be years before her credit recovers. Another possible solution? Skip the cosigning and offer a financial gift instead. It can help them qualify for the loan or make monthly payments easier and you may be able to get a tax benefit from the gift.
Reported by Jim Donovan, CBS 3