Loan settlement occurs when the borrower is delinquent on the loan payments and it is doubtful the loan will eventually be paid in full. In many cases, the borrower is in default or in breach of the loan contract. As a cosigner, you can endure lasting effect on your credit score as a result of the loan settlement.
Responsibility
Cosigners sign documents relegating them to the debt of the borrower who cannot pay it. When a loan defaults, the cosigner is responsible for the debt. The default will negatively affect the borrower's and cosigner's credit scores.
Debt Help
Borrowers may seek help from a debt settlement company. These establishments charge fees to help settle the debt. However, this process may take time to complete. While the borrower is building up enough escrow payments to pay the agreed settlement amount, the lender can go after the cosigner for the debt.
Special Considerations
Cosigners can also settle the loan debt. Once they are responsible for the debt, the cosigner can negotiate a payment that would satisfy the debt in lieu of full payment. The cosigner must wait until the borrower has defaulted on the loan. Once the debt is settled by the cosigner or the borrower, the loan is closed and nothing more is owed.
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