When you cosigns on a loan, you are agreeing to be liable for the remaining balance if the original person on the lease fails to fulfill his or her obligations under the loan. If that person does not handle the lease in a responsible manner by making ongoing and timely payments, this can negatively impact the co-signer’s loan.
Fulfill the Contract
If the co-signer is more concerned about the potential damage to his or her credit or wants to take on a substantial credit move and does not want the cosigned loan to affect him or her, the best way out of the lease may simply be to pay it off. For example, if the lease was for payments of furniture for ten months, the cosigner may simply choose to pay off this balance. He or she could then enter into a separate agreement with the original party and transfer his or her debt to the cosigner rather than the original property owner.
Check Contract Provisions
The lease is a contract between the co-signer, the person entering into the lease and the property owner. As such, the provisions in the contract specify the legal obligations of each party. The lease may include specific provisions regarding how to terminate the contract. For example, a contract regarding a property that is being leased may state that a renter can break the lease if he or she pays a certain number of the remaining months on the lease and forfeits his or her security deposit. Weigh the consequences to breaking the lease and determine whether this would represent a smaller loss than having to carry out the lease.
Do Not Renew
Leases are relatively short legal agreements, normally expiring after one year. After the initial lease term is fulfilled, the co-signer may prefer to fulfill the initial term but then refuse to enter into any subsequent leases. This may provide the original person leasing the property to have established or maintained good enough credit that a co-signer is not required.
Get a New Contract
If the property owner agrees, the original contract may be cancelled and a new one may be drawn up in which the co-signer is not listed. This may happen if the property owner does not want to deal with the hassle of enforcing the original contract or wishes to maintain a positive relationship with the person who entered into the lease. Additionally, this may occur if the original person listed on the lease has sufficient resources to pay the monthly bill.
If the lease was for the purchase of a vehicle or other asset, the original person who entered into the lease may be able to refinance the deal in his or her own name. This may be possible if the principal of the loan has been significantly decreased during the time the loan was co-signed.
Contract Defenses
If the original party who signed the lease is fulfilling his or her terms of the lease and not adversely affecting the lease, the only risk is that he or she will default on the lease at some point in the future. If he or she does not default, the co-signer is likely not going to be affected too much by the cosigning. However, if he or she does default, the cosigner may consider if there are any traditional contract defenses available, such as duress, fraud, incapacity or the statute of frauds. If the cosigner is in a position of being sued for any remaining balance and legal fees, he or she may consider contacting a contract attorney to review the lease and his or her potential defenses.
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