Should I Be a Loan Co-Signer?

SHOULD I CO-SIGN A LOAN

If a family member or friend expresses the need for help, it is natural to want to assist them. However, if someone you know asks you to co-sign a loan for them, think twice before you do so. Co-signing a loan for someone is risky because in the event that they do not pay, not only are you on the hook for the payments but you also run the risk of having your credit damaged.

Analyze the situation before you make a final decision.
Don't look over the fact that regardless of who you are trying to help, you are committing your financial well being and future to theirs if you decide to co-sign a loan for them. The loan will not only show up on your credit report as though you are the borrower, you will be responsible for the entire owed amount in the event that loan is defaulted. Therefore, take the decision of co-signing a loan extremely seriously and cautiously.

Questions to ask yourself before becoming a loan co-signor:
- Will I be able to afford the loan payments if the applicant goes into default?
- What are the chances that they will indeed default on the loan?
- How is my credit going to effected as a result of being a loan co-signer?
- Am I going to need to borrow money myself anytime soon? How will co-signing this loan affect my chances for approval when I need to apply?

If you can grasp the fact that you are going to be responsible for the loan if it is defaulted, you should be able to make a knowledgeable decision. Being a loan co-signer is not for everyone and really can be a bad idea. You need to be comfortable doing so. Never allow anyone to make you feel guilty into becoming their co-signer.

What negative things can happen to me as a loan cosigner?
You can be sued by the creditor if the loan is defaulted. Even if payments are late, the creditor/lender can contact you for collecting money. In fact, they will likely contact you first before they contact the actual borrower! In the lender's attempt to collect, they have the right to garnish your wages and even seize your property!

More things to consider...
You may think that you are helping the person you are co-signing get their credit back on track. However, people with bad credit utilizing a co-signer for a loan are likely going to be required to use a co-signer in the future if applying for additional financing. Therefore, by co-signing their loan, you are likely going to make it harder for them to achieve approval on their own in the future.

No matter what decision you make, don't feel bad about hurting anyone's feeling and definitely don't be pressured into doing something you do not want to. Just be smart.

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