Consequences of Cosigning a Loan
Below is a discussion on the hidden consequences of cosigning a loan.
You Become 100 Percent Responsible For A Loan That Could Be A Huge Amount
Cosigning a loan makes you responsible for the loan by default if the other party is not able to pay. Note that the lenders are not interested in letting you pay half the amount. Therefore, in case the borrowing parties are unable to pay the amount, you will have to do it by yourself or work that out with the said party.
You May Face Tax Consequences of Cosigning A Loan In Case the Debt Is Settled
The lender may not prefer to sue you for the case of nonpayment. Instead, they may agree to settle the balance that you owe. This means that you will have to face the tax liability of the difference involved. In case you are able to settle only a percentage of the total amount, you will have to report the remaining money as a “debt forgiveness income” in your tax returns.