If you have a child or other family member who is unable to get the loan or credit card they want on their own, they may ask you to be a cosigner or joint account holder. Before agreeing to do this, it’s essential to understand what this could mean for you — particularly if your loved one is unable to make their payments.
Cosigners and joint account holders are both responsible for paying whatever debt is owed if the primary account holder is unable or unwilling to. However, they typically have no access to the account and may not even be allowed to see the status of it. That can be dangerous, since a loan, line of credit or credit card can be seriously overdue before they’re aware that there’s a problem.
In most cases, once you’ve agreed to cosign or accept joint ownership, you can’t get out of the deal. In some cases, lenders will have a cosigner release clause. However, this release often requires the primary account holder to demonstrate that they’ve been making payments in a timely manner.
Cosigning or having joint ownership of a loan product means potentially putting your financial security and your credit score on the line. If the primary account holder files for bankruptcy, they may be able to have the debt discharged, but you’ll likely still be responsible for it.
If an adult child, sibling, best friend or anyone else asks you to cosign or become a joint account holder with them, it can be difficult to say no. You want to help them. You may also be flattered that they know that you have a longer and better credit record than they do. However, there are alternatives. Secured credit cards and credit builder loans are just two options for people who have little or no credit history or who are trying to rebuild a damaged credit record.
If you’re already facing financial problems and possible bankruptcy in part because you’ve been left to pay off a loan or credit product you’ve cosigned for someone else, it’s wise to seek legal guidance as soon as possible.