Coaching on a loan or other debt makes an agreement to become jointly responsible for the debt. Cosigning on behalf of another person usually means that you use your credit to convince the lender that the loan will be paid back. You are usually equally responsible for the loan with the person on whose behalf you have cosigned. The lender usually sends the payment order or other documentation of a payment because of the person who actually gets the money or property to pay with the loan. If that person does not pay, the lender will retrieve from the cosigner. If he is a borrower by default, cosigner is usually responsible for payment of the entire unpaid balance of the loan in its entirety (along with any additional collection costs), not just half of the balance.
In general, cosignering a loan is different than guaranteeing a loan. A cosigner is similar to other cosigners on a loan and can be sought for the unpaid balance that is paid when there is a default in a payment.
In the case of a guarantee on the other hand, a lender normally only carries out a guarantor after it has been a serious standard and the lender has made any collection efforts against the borrower first, possibly even getting a judgment. A guarantee is another type of contract from cosigning and has some important, different requirements to be valid.
A borrower may require a cosigner if he (or she) takes out a loan for the first time if the loan amount is high and he earns less than required to qualify if the borrower has an irregular or seasonal income or if he has bad credit points.
In a small business or company with a single shareholder, a bank or other lender who gives a significant loan will usually ask the shareholder (and sometimes a spouse) to cosign for the loan. This can also happen in a company or other multi-share company, where the bank may ask everyone, or at least the major shareholders (or any shareholder with assets) to replace personal liability for a loan. Cosigner a corporate loan makes cosigner equally responsible for the operations on the loan. From the lender's perspective, this helps to increase the company's liability for repayment of the loan, especially if the shareholder (or cosigning spouse) has assets and the operations do not. It helps to protect the bank against a company with few assets explaining bankruptcy without having to repay the loan. Cosignation of a loan may place shareholders 'or other business owners' personal assets, together with their spouse, risk of selling or otherwise liquidated to pay corporate debt. To a certain extent, the business debt business cycle disappears with the purpose of a company or other business unit to protect owners or shareholders from their creditors.
It's tempting to help someone get a loan to buy a house or car, get training or help with a company. People will be grateful for you for help getting the loan. However, lawyers generally will discourage you from creating a loan if it can be avoided. Coaching for the first car loan for your daughter or son or close friend will make you a hero, but you must then protect yourself by ensuring that car insurance is always paid on time. You must also hope that the daughter or son or other party you cosigned for keeps his job and otherwise shows financial responsibility by making the payments on time.
Almost every bankruptcy lawyer would advise you not to become a cosigner in most situations. Your degree of commitment as a cosigner depends on the lender. Some may call you at first instance payments are not received for a few days, others may not ring until things get pretty bad. If the borrower refuses to repay the loan, you must either repay the loan yourself or allow your credit to do dump and face tracking actions that may include court actions and have your paycheck garnished or your assets taken.
There is another drawback in becoming a cosigner. Through cosigning you expand your credit to allow another person to get a loan. When applying for a loan, a lender will look at you as a higher financial risk because you have an extra extension of your credit. You may not be able to get a loan for yourself when you need it.