There can be some confusion when it comes to co-signer rights. Just how much of the balance are you responsible for? What happens when the co-borrower misses a payment? Is there a way out or a co-signer release?
To help address your concerns about co-signer rights, let’s look at a common case study. For this scenario, we’ll look at a mother who has just cosigned a loan for her son’s fiancee.
Let’s say the amount for the loan was somewhere in the neighborhood of $20,000. The amount really isn’t important — it’s the fact that the fiancee ended up dumping her son and is married to another man. Unfortunately, this mother is still legally required to monitor the status of this loan and, yes, she is 100% responsible for making monthly payments when the ex-fiancee slips up.
So what can the mother of the spurned son do? She obviously doesn’t want to be financially tied to this ex-fiancee but just what are her co-signer rights?
She can ask for a co-signer release
Before we get into a co-signer release, the first thing this mother should do is make the payment even when the ex-fiancee is delinquent in doing so. Feelings aside, making that monthly payment is imperative to minimizing the impact on the mother’s credit history. Once this has been done, she can reach out to the primary borrower (the ex-fiancee) and ask for a co-signer release.
In short, a co-signer release can free the co-signer from any financial responsibility once the primary borrower has fulfilled a particular condition (a certain number of consecutive monthly payments, for example). This is the best possible outcome since co-signer rights don’t allow for a whole lot of recourse in this situation short of filing a lawsuit when the primary borrower defaults.
A bad financial decision to co-sign
While it’s usually not advisable to be a co-signer, there are situations where it can be a tremendous help to the primary borrower. However, being mindful of co-signer rights (or lack thereof) can make all the difference in the world when it comes to signing. And, getting a co-signer release is no small task, either.
It’s up to the lender to remove a co-signer. And, for the removal to happen, the primary borrower must demonstrate she has the income and credit history to handle the loan on her own. And, as stated earlier, it’s typical for a lender to require a successful payment history as a condition in the decision to release the co-signer.
Ultimately, co-signer rights come down to one very important fact: when you agree to be a co-signer, you are agreeing to pay even when the primary borrower does not. It’s airtight, legally, and the only thing that can be done short of taking legal action is to look to a co-signer release.
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