Use Extreme Caution

• Cosigning a loan is not a complex task, but it carries a massive amount of potential implications. The loan agreement verbiage can vary, but the gist is that if the primary borrower is unable or unwilling to cover the amount due on a loan, the cosigner typically becomes liable. BankRate.com makes it clear that a prospective cosigner should never agree to a loan that he is unable to pay, as he will be liable if the primary applicant does not abide by the agreement. The credit history of the cosigner can be degraded just as much as the primary applicant's credit if things go awry.
  
  

What Can Truly Happen

• BankRate.com states that if a loan agreement is defaulted upon, the lending institution does not have to exhaust all avenues with the primary applicant to make him pay. Cosigners can be subject to attorney fees if the lending institution sues, any collateral owned by the cosigner used to secure the loan is subject to permanent seizure, and lenders can and will take aggressive measures if they are not repaid timely.
  
  

Minimizing The Risk

• Prospective cosigners can help limit their exposure by taking a number of steps. They can request to be notified if a payment is not made in a timely fashion by the primary applicant. They can request to be held liable only for the original loan itself and not any late fees or attorney fees. Lastly, cosigners can request to be removed as cosigners once a certain amount of payments are made. For example, if the loan term is five years and three years of those payments go off without a hitch, the lender might be willing to take the cosigner off the loan. The lending institution is not typically required to do any of this, but many institutions will do so if asked, if they feel the circumstances and history allow for it.
  
  

What is Needed For Cosigning

• According to BankRate.com, lenders look at proof of income and credit history. Cosigners will typically need to provide roughly the same things as the primary applicant. Cosigners should keep in mind that they are being asked to cosign precisely because the primary applicant does not have what the lender deems to be necessary credit or income to get the loan on his own. Cosigners unable to make good on the debt on their own should not be a cosigner.