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Q: I co-signed a loan for my cousin three years ago and never thought about it again since the payments were his responsibility. But I got a call from the lender the other day. The loan is a few months in arrears, and my cousin won’t return the lender’s calls. What are my options? —Darren

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FP Answers: A call like that can be a real surprise, especially when you had put the loan out of your mind. But the lender is right to contact you. When you co-signed, you became equally responsible for the full debt, not just a portion of it. Your cousin’s missed payments are now yours as well, and the impact on your credit rating has very likely already started.

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While the situation may feel uncomfortable, you do have options. The key is to understand them before the debt grows any further.

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Start by asking the lender for a written statement of the account that shows the total arrears, any penalties that were added and the amount needed to bring the loan up to date.

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At the same time, request your free credit reports from Equifax Canada and TransUnion Canada to see how the missed payments have been reported and whether the account has already gone to collections.

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If your budget can absorb it, paying the arrears and taking over the payments is the most direct way to stop further damage to your credit rating. It is not what you signed up for when you chose to help your cousin, but it stops the accumulation of fees and interest while you sort out your longer-term options.

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If you take over the payments, try to discuss the situation with your cousin and put a repayment arrangement in writing, one that both of you sign and date and that spells out what happens if he defaults again. Even a simple document is worth having.

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Co-signers generally cannot remove themselves from a loan, but some lenders will consider a co-signer release once the primary borrower qualifies independently and the account is back in good standing.

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Refinancing into your cousin’s name alone could also end your joint debt responsibility, but only if he co-operates and still qualifies despite the missed payments. Offering collateral will strengthen his chances.

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If you expect to carry the debt, ask your own lender about a consolidation loan at a lower interest rate. While the balance is then only in your name and your cousin owes you directly, you control the loan.

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If the loan is secured by an asset, such as a car, telling the lender where the asset is may help resolve the debt sooner. Repossession will hurt every borrower’s credit, but it may reduce or eliminate what is still owed, depending on your province’s regulations.

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A lump-sum settlement may also be possible if neither of you can keep paying but one of you can come up with some cash. It will not undo the credit damage, but it can close the account.

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If none of these options feels workable, reach out to a non-profit credit counsellor as soon as possible. A counsellor can walk you through realistic debt relief options, including bankruptcy and alternatives, such as a debt repayment program.