Becoming a co-signer on a loan is virtually the same as taking out the loan yourself.
"When you co-sign a loan, you're signing a legal contract that says if the primary borrower does not repay the loan, then you will be responsible for re-paying the loan. So basically, you're equally responsible - both the primary and the co-signer - are equally responsible for the entire loan amount,” said Susan Utsug of Central Pacific Bank.
Being a loan co-signer is not quite the same as being a loan guarantor. Let us suppose there is no chance the borrower can EVER repay the loan and it goes into default.
"Only upon default whereas the situation where the primary borrower can not repay the loan at all, the bank has to - the loan goes into default, the bank would then look towards the guarantor, as the repayment source, a secondary repayment source."
Under what circumstances would someone need a co-signer?
"A first time borrower may need a co-signer because they may not have credit history. There may not be enough information for a financial institution to make a decision on that request and so a co-signer may be a way for the bank to be able to do the loan."
And what things should you consider if you are asked to be a co-signer on a loan?
"If you're asked to be a co-signer, you should have a clear understanding of the loan terms, how much is the loan, what is the monthly payment and you need to consider whether you'd be able to afford that monthly payment if you had to be responsible for that payment."
And Utsugi says, keep in mind that whatever happens with the loan if you are a co-signer, it will have an impact on your credit report and credit history.
