How to Protect Yourself: Co-signing a LoanSource: The Florida Attorney General's Office
How to Protect Yourself: Cosigning a Loan
Before you decide to cosign a loan with someone, make certain that you understand exactly what cosigning a loan involves and what your obligations will be. Be sure you can afford to make payments if the person you have cosigned for defaults, and that you want to accept this responsibility. Consider these suggestions:
The Federal Trade Commission (FTC) dictates what information creditors are required to provide potential cosigners.
Under the FTC rule, 16 CFR s.444.3, creditors are required to give a cosigner a notice that explains what his or her obligations would be. The cosigner’s notice states that the cosigner is being asked to guarantee this debt; may have to pay up to the full amount of the debt if the borrower does not pay; and may also have to pay late fees or collection costs.
It also states the creditor can collect this debt from the cosigner without first trying to collect it from the borrower and the creditor can use the same collection methods against the cosigner that can be used against the borrower, such as a lawsuit, garnished wages, etc. If the debt is ever in default, that fact may become a part of the cosigner’s credit record. This notice is not the contract that makes you liable for the debt.
Cosigners often are required to pay.
You, as a cosigner, are being asked to guarantee someone else’s debt. The lender would not require a cosigner if the borrower met the criteria for the loan. If the borrower misses a single payment, the lender can collect from you immediately. Also, the amount you pay may be increased by adding late fees, not to mention court costs and attorney's fees if the lender decides to sue to collect. If the lender wins the case, your wages and property may be garnished or taken.
Consider all factors if you decide to cosign.
If you decide to cosign despite the many risks, remember to carefully consider all factors. Be sure you can afford to pay the loan – you should keep in mind that you are obligating yourself to the loan, which may prevent you from obtaining other credit you may want. Do not pledge property to secure the loan unless you fully understand the consequences. If the borrower defaults, you could lose your property. You may also want to ask the lender to limit your liability upon default. For example, the lender could include a statement in the contract that “the cosigner will be responsible only for the principal balance on the loan at the time of default.” You could ask the lender to notify you, in writing, if the borrower misses a payment. Last, make sure you get copies of all documents related to the loan. The lender is not required to give them to you, and if the lender does not provide them, ask the borrower to make you a copy of the documents.Seek additional information.
The Florida Office of Financial Regulation (OFR) provides regulatory oversight for Florida’s financial services providers. For more information, visit www.flofr.com or call (850) 487-9687. Additionally, the Florida Department of Financial Services Division of Consumer Services offers a variety of resources on financial topics. For more information, visit www.myfloridacfo.com/division/consumers/ or call the Department of Financial Services’ consumer helpline toll-free at 1-877-MY-FL-CFO.
File a complaint.
If you wish to file a complaint against a bank or lender, you may do so by contacting the OFR at www.flofr.com or (850) 487-9687. Additionally, you may file a complaint with the Attorney General’s Office online at www.myfloridalegal.com or by phone at 1-866-9-NO-SCAM. You may also wish to file a complaint with the Consumer Finance Protection Bureau (CFPB), a federal agency tasked with reviewing consumer complaints about consumer financial products and services. File a complaint with the CFPB online at www.consumerfinance.gov or call toll-free at 1-855-411-2372.