WHY CO-SIGNING A LOAN IS A BAD IDEA

Even if the loan that you have co-signed on is in good standing, being a loan co-signer can negatively impact your credit score and effect your own abilities for borrowing.

The loan you have committed to being a co-signer of is a debt that reflects on your credit report just like any other debt you encompass. Therefore, whatever info the lender of that loan reports regarding the account status is going to show up on all names connected with that account.

Therefore, the debt of that loan is going to increase the amount of your total outstanding debt -- supplemental to your car loan, mortgage, student loans, credit cards, etc.. You may have a difficult time applying for a personal loan for yourself in the event that the lender concludes that your debt-to-income proportion is too high -- regardless if the account's payment history is ideal.

Also, most late payments will reflect on your credit report, typically without any cautionary notice. It is possible that some lenders will attempt to notify co-signers and grant them a chance to pay prior to reporting it as late. And in the event that the borrower fails to pay the loan, it can annihilate your credit -- reflecting as a default for you as well.

Should I co-sign a personal loan?
Since there is so much at risk, it is going to be best to decline any invitation to be a co-signer. If you are an individual that likes to help, analyze the entire situation first, regardless if this is a family member, child or friend. Try and determine if the person you are dealing with has the ability to repay the loan. It is your credit history and money that you are risking.

If you do decide to go ahead and co-sign, make sure you understand all of the aspects of the loan, including the terms and conditions and all of the rates and fees involved. It is important that your contact info is listed on the loan and that you are to receive all the same loan documents as the borrower and that you are sent payment confirmation each month.

Once you co-sign for a loan, your name is associated with that loan until the loan is paid off. However, the borrower's credit will begin to improve and they will soon be able to refinance the loan to be only in their name.
 

Related Reading:  
Lending to Family 
Getting a Personal Loan With a Cosigner
Getting Out From Being a Cosigner

Before You Co-Sign, Protect Your Credit
 

 

 



 

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