If you have been approached by your friend or a family member for financial help, it is quite important that you take decision wisely. There are lots of risks associated with cosigning a student loan. To start with, if the person you have co-signed with does not pay loan amount on time, it will be your responsibility to pay the loan amount. Cosigning is a method through which people with bad credit can get loan without worrying about their credit score.

Negative impact on your Credit Rating

If the person you have cosigned with does not pay monthly installments on time, it will have a negative impact on your credit rating. Once your credit rating deteriorates, it is not easy to resurrect it. Improving credit score takes plenty of time and you need to be very disciplined in order to achieve it. Before cosigning a student loan, make sure that you check the financial condition of other cosigner first. There is no point cosigning a student loan if the monthly source of income of other cosigner is not up to the mark. To get a better feel of cosigner financial condition, check their bank account details.

According to recent study of Federal Trade Commission, of all the co-signed loans that enter into the category of default, as many as six out of eight co-signers are needed to repayment of loan. Remember, your family member has taken your assistance after facing rejection from the financial institution because of their bad credit rating. Financial institutions normally reject student loan applications when they believe that borrower is quite a risk for them. In this scenario, financial institutions are left with no other option than to ask for a co-signer.

What will happen if the other co-signer misses a payment?

In majority of US states, if the other co-signer misses a payment, financial institution will come directly to you rather than contacting the actual borrower. In some cases, you will also be required to pay late fees that are applicable to the actual borrower. If you have put anything in the form of collateral, financial institution is given a full freedom by the US law to recover their loan amount by selling your collateral. Do not put anything as collateral until and unless you are sure of the credibility of your family member or friend. Before co-signing, be clear in your mind whether you can afford the debt amount or not. If the answer is no, tell your relative clearly your financial condition is such that you cannot afford any additional burden.