The biggest risk of co-signing a loan is the possibility of credit damages caused by late payments or repossession. As a co-signer, you're equally as responsible for the auto loan payments as the borrower. Depending on the way your loan account was set up when you initiated the loan, you might not be contacted if the borrower defaults on payments.
Read Your Paperwork
Your lending contract states the process and reasons for a repossession, although it may not describe the procedures for collection and contact. Most lenders, however, make repeated attempts to collect payment after a loan payment is late. To protect the lender, contracts usually state that the lender has the right to repossess a vehicle one to 10 days after non-payment. While most lenders wait to repossess the vehicle to provide time for payment, the terms are clearly stated in the loan contract, which both you and the co-signer agreed to by signing the contract.
Arrange Contact with Your Lender
To prevent issues with non-payment, contact the lender and ask to receive a copy of the loan statement each month. When you signed the original loan contract, the person you co-signed for likely became the loans primary borrower, so her address and contact information were likely recorded as the loan's contact information. It might also be difficult talking to the lender about the account unless the borrower authorizes the lender to talk to you. Avoid these issues by discussing your contact requests before you sign the loan contract. This way, your information is added to the account properly and you'll receive statements reflecting the balance and payments on the loan account.
Online Access and Payment Collection
Many lenders provide an online banking service, which allows a borrower to review a loan account balance, the payoff amount and late fees caused by late payments. Payments are often updated the same day, so you're likely to catch payment issues quickly if you have access to the borrowers loan account. Most lenders require both borrowers to open a joint account, so obtaining online access to your account shouldn't be difficult. As a term of co-signing the auto loan, you might request that the borrower pay you instead of the lender. This way, you can ensure timely payments and protect your credit.
What to do After Default
If you find out the borrower isn't paying the loan balance, you'll have to pay the past due amount to protect your credit rating. Payments more than 30 days late are reported on your credit report. If you find out about the loan default nearing or close to repossession, refinance the vehicle into your own name to protect your credit. You're also liable to pay the lender for the amount due on the loan after the repossession. If the car has already been repossessed, you'll have to pay the balance due or the lender can pursue legal action against you and the borrower.
0 comments:
Post a Comment