Think BEFORE You Sign!

 

What is a contract?

A contract is a legally binding agreement between two or more people or legal entities (such as a corporation or company). Entering into a contract of any kind is extremely important, and can affect your financial situation, and even your credit rating. Every time you're asked to sign something -a credit card receipt, a rental agreement, a repair order for your vehicle or home, a real estate contract, to name a few - you're being asked to sign a contract. Although contracts don't always have to be written, it's a good idea to have agreements set out in writing, especially for major purchases. But remember - if you're entering into a written contract any verbal promises are not part of the contract. If a sales person makes a spoken promise, make sure it's written into the contract.

Ask questions!

Before you sign anything, read it thoroughly and make sure you understand everything you've read. If you don't understand - ask questions! Anyone asking you to sign a contract should be happy to answer all of your questions and make sure you understand what you're signing. If they're not - think again before you sign. If necessary, ask for a second opinion. Ask a trusted friend or advisor for help, or seek legal counsel. You should never feel rushed or pressured into signing.

Make Changes!

You can make changes to a pre-printed contract. If you don't like some of the terms, or want to add a new term, such as a verbal promise mentioned by the salesperson, you can add it to the contract. But make sure the other party to the contract agrees, and that you both initial any changes. Don't sign a contract unless all the blanks are filled in or designated 'not applicable'. Make sure you keep a copy of the contract for your records in case the terms are disputed.

Should I cosign a loan?

Friends or relatives are often asked to cosign a loan. Think about the risks involved before you sign. If you cosign a loan, you are agreeing to pay the loan in full if the borrower does not pay the debt. Be sure you can afford to make the payments if the borrower cannot. You may also have to pay late fees and collection costs, since cosigners often do not find out the loan is in arrears until many payments have been missed. If the loan goes into default, your credit rating will be damaged.

Risky Business:

Statistics show that 3 out of 4 cosigners are asked to repay the loan. The reason you're being asked to cosign is because the borrower does not meet the lender's criteria for borrowing. If the lender won't take a risk on lending to your friend or relative, maybe you shouldn't either! If your friend or relative defaults on the loan and can't repay it, the lender can collect from you just as if it was your loan alone. They can garnishee your pay cheque, sue you, or repossess any property you may have pledged as security for the loan. Read the fine print on the contract before you sign - it may give the lender the right to take your household goods if you can't repay the loan! Don't pledge your own property as security for the loan - you could lose those items if the borrower defaults.

It's your liability, too!

Even if your friend or relative makes all the payments on time, you may have trouble getting other credit yourself because lenders will consider the cosigned loan as one of your obligations. If you have a major purchase of your own coming up, make sure your liability for the cosigned loan will not prevent you from borrowing for your own needs.

Negotiate!

Negotiate with the lender over the terms. For example, you can ask that you be responsible only for the principal balance at the time of default, or to be notified immediately if the borrower misses a payment. Make sure any agreed upon terms are included in writing in the contract. Obtain and keep a copy of the contract in a safe place with the rest of your important papers in case there is a dispute. If the lender won't give you a copy, ask the borrower for a copy.

Play it safe - get it in writing. But remember, you'll have to live with what you sign! So think before you sign! Better yet - think twice!!

 

 

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