Bank of America: What does "cosigning" a loan mean and what are my responsibilities?

Cosigning a loan for a friend or family member can be a great way to help them out. But before you do, you need to make sure you know what you'll be responsible for and how your credit score could be affected. To learn more, and to see more videos, visit http://go.bofa.com/6qcf.

What does co-signing a loan mean?

And what are my responsibilities?

so someone's asked you to co-sign on a loan so what

does that mean well when you cosign on a

loan or credit card application you

formally take on legal responsibility

for the account which means any debt and

payments will appear on your credit

report more importantly if that person

misses a payment or worse yet defaults

on the loan the negative impact will be

felt on your credit report and the

creditor may even require you to pay the balance

so why would anyone cosign alone while

co-signing can help the original

borrower get approved or sometimes get a

better rate on the loan due to your good

credit history for example your good old

son or daughter may get a much better

rate on the loan for their first car

since you know they're just establishing

credit and you've had a much longer

history of managing debt well keep in

mind once you sign you're in a

partnership it's your loan as much as

your co-signers now it's extremely

difficult to remove a cosigner from a

loan so make sure you know and trust the

person before agreeing

now if a hardship happens like an

illness or a job loss make sure you're

in a financial situation where you're

able to take on and can pay the extra

debt if the other person can't

if you co-sign a loan as far as lenders

are concerned it's your debt and if

you're unable to make the payments on

the loan your credit may be harmed you

should also be aware that co-signing

alone may impact your ability to obtain

new credit down the road such as a car

loan since you are legally responsible

for the co-sign loan it impacts your

debt to income ratio and if your debt to

income ratio is too high

lenders may be less willing to extend

more credit if you do ever cosign for a

loan treat it as you would your own make

sure you know payments are being made

and what the balances are this not only

helps you avoid unpleasant surprises

down the road it gives you the

opportunity to offer some guidance so

the person you co-signed for get started

down the right path to building or

rebuilding their own strong credit history