Why It’s Not Advisable To Become a Loan Comaker

This is a good financial advise – avoid being a loan comaker as much as possible as there are dangers inherit therein.

On this iSensey post we share to readers the reasoning why we discourage anyone for signing up as a co-maker to a loan application. 

Be cautious if somebody ask you to sign a loan application or promissory note as the co maker.

Has anyone approach you, urging you, begging you to become his/her co-maker in applying for a loan so he/she can be approved? It can be a friend, an officemate, a family member. Before you say yes, know this first:

Those who sign as a co-maker to a loan are considered technically as a principal borrower, even if the comaker did not get even one centavo of the loan proceeds. 

By signing the loan form or promissory note, a comaker signifies his or her willingness to shoulder the payments should the creditor demand it from her/him when the loan becomes due.

Yes, even if the principal borrower is easily located and has money but he/she refuses to pay the loan, the creditor or the company who gave out the loan can come after the co maker. 

Although there are types of loan wherein the loan form states that a comaker is only liable for half the approved amount or a certain percentage. But in most cases, the loan forms or promissory notes will state that the co maker is jointly and solidarity liable with the principal for the whole amount of the debt. 

Example situation:

Elena and Martha are both members of XYZ COOP. Elena is qualified to loan a maximum amount of P25,000. But to be approved of a loan, Elena must find a comaker to sign the loan with her. A co maker for loan application is required by this coop and the form states that the co-maker is jointly and solidarity liable for the whole amount just like the one who applied for the loan.

Martha and Elena are friends, so Elena decides to approach Martha since she knows that Martha will not be able to say ‘no’ to her request. And indeed, Martha signed the loan forms as Elena’s co-maker. Elena got her P25,000 loan approved. 

Elena paid the loan amortization on the 1st and 2nd month. But starting on the 3rd month, she defaulted on the monthly payments because her income stopped, as she was fired from her job. 

After 3 more months of no payment, the coop decides to demand the loan overdue from Martha. Martha argued that she did not even get 1 centavo of the loan, all of the P25,000 went directly to Elena so she shouldn’t be forced to pay the loan of Elena. 

Can Martha stop the coop from going after her?

No. The coop can rightfully demand Martha to pay the loan. Why? because she signed as a comaker.

Again, a comaker is just like being a principal borrower. The comaker is liable for the loan, much the same way and extent as the one who applied for it, unless the signed loan form says that the co maker is only liable for half the amount or only a certain percentage of it. Regardless, the creditor has right to demand payment from the main borrower and the co-maker. 

Now, what if Elena do have money but she just doesn’t want to pay the loan. Can Martha argue to the coop to only run after Elena because Elena have money? Will the creditor be forced to go after Elena first before Martha?

No. Why not? The coop or the company who gave the loan is the one who has the power to choose who to run after, who to sue, since to the eyes of the loan company, both women are principal borrowers, even though one signed only as a comaker.

This is the reason why our iSensey Team’s advise is for you to refuse becoming someone’s co maker as much as possible. The loan co maker responsibility is financially risky. Of course we know there are circumstances wherein you will feel like you do not have a choice but to sign, example being a comaker to one’s sister whose child was rush to the hospital. 

But weigh everything before signing the loan form. Also try to advise your friend or family member to look for a loan first which doesn’t require a co maker. 

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