I have been asked this question a lot. Should you co-sign for your kids, family, friends, boyfriend, girlfriend, or parents? What does co-signing mean? Why not do it? It’s not like you’ll be paying for the loan. WRONG! Co-signing something can turn your world upside down. You’re taking all the risks and getting no benefits.
When you cosign, it’s telling the bank or lender that if the person signing with you doesn’t hold up their side of the deal, you will be financially responsible.
Should you co-sign? Risks?
Risk vs. reward
You as the cosigner are taking all the risks and not getting any reward. You are taking on a huge burden and not benefiting. You’re saying you will pay for a car you’re not driving. A home you’re not living in. A cash loan that didn’t go in your pocket. You’re responsible for a credit card that you’re not using.
There’s a reason that person needs a cosigner. Either they have no credit, or they have bad credit. If someone has bad credit, that means they don’t pay their bills. If they did, their credit wouldn’t be shot.
You are 100 percent liable for the loan
Let’s say your sister asks you to cosign for a $20,000 car. If you do it, you are now responsible for that loan. It doesn’t matter if you sister had the car and was supposed to pay it. The lender can then pick which one to go after. They could go after you both or just you. Just because you co-sign doesn’t mean the other party is responsible for 50% it means both are responsible for 100% of the loan.
You’re stuck on the loan until it’s paid off
Don’t fall for the “ill take you off in a few months” lie. If you cosign, you are stuck on that loan for the entire loan period. A lender can take you off, but why would they? If you had good enough credit to cosign more than likely the lender isn’t going to let go of your obligation. They want to make sure they get their money and by having you a person with good credit as a co-signer, they are more likely to get their money.
You can be sued
A lender can go after you in court. They don’t have to go after the original signer. As a cosigner, you are just as much responsible for the loan as the person you signed for. If they lose their job and stop paying the bank is going to come after you. Why? Because you have a job and your credit is higher which means you pay your bills.
Financial problems can turn into family problems
When you sign for family or friends, you have to make sure the loan is paid on time. It can and usually does destroy relationships. You turn into the hounding debt collector because your finances are on the line.
If the person you signed for misses payments, makes late payments, gives the car bakes, goes into forecloser, or a number of other things it’s going to hurt your credit. Which will make it hard for you to get a loan later if you need one.
Have you every cosigned for someone?