Loan agreement means agreeing to guarantee personal loan that someone else wants to endure. For example, if a friend asks you to get a car loan, you will vouch for that friend to the lender. Moreover, you agree to accept legal responsibility for repaying the car loan if your friend does not fulfill his obligations. And you put your credit on the card, because late payments will appear on your credit history.
Most often, people want to receive personal loan with an invited person if they have no credit or if they have bad credit. As a result, by signing the loan, you agree to take on a credit risk that the lender will not take on. You can jeopardize your finances by making such a choice, so there are very good reasons to refuse to commit to a contract.
But if someone asks you to help them financially in this way, it is as Can you say no without creating tension in the relationship or causing unnecessary stress? Here are some suggestions.
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Make sure the main borrower understands the risks
Many people who ask you to subscribe don’t quite understand the risk they are asking you to take. Perhaps they are just asking for a co-director because the lender told them they needed one.
If they don’t know that you may be hooked on their debt, if they die, or simply cannot pay their bills, then clarifying the matter to them may be enough to force them to reconsider their request.
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You can also explain some other disadvantages from your point of view, such as the fact that your own borrowing capacity may be affected as the signed debt will be offset against your debt-to-income ratio… (Here’s how much debt you have compared to how much money you make.)
Provide justification – if you want
In some cases, you may feel like you have to explain to this person why you do not want to agree. The bottom line is that you really don’t need to explain why you don’t want to risk your finances over them. But it can help avoid anger if the person asking is close to you and you don’t want them to feel like you are rejecting their request for no reason.
You could explain that you are planning to buy a house or car soon, and that lowering your credit as a result of adding new debt to your credit report could make your own loan more expensive. Or, you can simply say that your financial advisor told you not to sign the contract as it would affect your finances.
Most people don’t expect you to compromise your ability to borrow or live securely just to help them get a loan.
Suggest alternatives to help
Just because you are not ready to agree does not mean that you cannot help the person who is asking in other ways.
You can offer assistance to the primary borrower in finding other financing options such as best personal loans for fair creditif they meet the requirements. Or, if they are interested, you can give them some advice on improving your credit rating…
If you have the financial ability, you can also offer them a small loan or even a cash gift that can make it easier to get the loan. For example, you can lend your friend $ 1,000 to park the car, which can make the lender more likely to approve a car loan for the remainder. While you run the risk of not getting those $ 1,000 back, you will at least limit your losses compared to re-signing the entire loan amount. And you won’t put your credit rating at risk.
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Most people in your life will be grateful for any offers of help you are willing to give, and hopefully they will understand that the danger of co-signing is too great.