Co-maker Loan Myths

There are a lot of myths being circulated regarding the credit union’s co-maker loan. We will attempt to correct several of these myths.

Myth: Co-maker loans are secured loans.
A secured loan is one that has an asset pledged by a borrower to secure a loan and is subject to seizure in the event of default. The co-maker loan is backed by a promise to pay by individuals who are not subject to seizure. This type of loan is referred to as a signature loan or an unsecured loan.

Myth: There is no risk of loss to the credit union.
This would be true if all co-makers repaid their portion of the loan when the borrower defaults. Unfortunately this does not always happen and the credit union suffers a loss. As noted in the previous myth, there is no collateral to be seized to offset the loan so if the co-makers do not honor their promise, the result is a loss.

Myth: There is no cost to the credit union for the money that is borrowed.
The money that the credit union loans belongs to the members’ in the form of savings accounts, money management accounts, IRA’s and certificates of deposit. The credit union pays interest to these members in the form of dividends. The member borrowing the funds is paying the member that is saving for the use of the money.

Myth: The co-maker loan rate is too high.
It is not uncommon to believe that any loan rate you pay is too high. Actually, the current co-maker loan rate, when compared to the credit union’s other unsecured loan rates, is the lowest offered and would only be available to those members with the very highest credit rating.

Myth: Co-maker loan rates used to be 1.0%.
Often members ask why the co-maker rate is not 1% like it used to be many years ago. Though this sounds enticing, in reality this rate was calculated per month and would be the equivalent of 12% annual percentage rate.

Myth: You must repay the co-maker loan with payroll deduction.
Payroll deduction is the easiest way to repay a loan at the credit union but is not required. Many members that receive a co-maker loan are not firefighters or do not have direct deposit available.

Myth: It is okay to sign someone else’s name when you have their permission.
The answer is maybe. You must have and provide proof of legal authority to sign someone else’s name to a loan document such as a power of attorney; otherwise you are committing forgery and could be subject to serious consequences.

The co-maker loan is a very unique type of loan normally only available at fire and police based credit unions. It is not the only unsecured loan offered at the credit union. Members can take advantage of the credit union’s Visa or MasterCard credit cards, a self replenishing line-of-credit or a signature loan with payments of up to 60 months.

For more information call the credit union at 713-864-0959.