So your family or friend asked “Will you co-sign for me?” What should you do? Here a few things to consider:
Ask yourself why your friend is coming to you.
Are they young and have no credit history? Are they borrowing more money than their credit will allow them? Are they having a difficult time financially?
I know most people feel pressure to say yes and sign on the dotted line, but your need to stop and think. If they can’t get a loan through traditional means there is probably a good reason. Co-signing could damage your relationship, damage your finances and damage their finances. You need to consider what you’re signing onto when you co-sign.
Are they young and have no credit history? Are they borrowing more money than their credit will allow them? Are they having a difficult time financially?
I know most people feel pressure to say yes and sign on the dotted line, but your need to stop and think. If they can’t get a loan through traditional means there is probably a good reason. Co-signing could damage your relationship, damage your finances and damage their finances. You need to consider what you’re signing onto when you co-sign.
What are you on the hook for?
Co-Signing a loan means you are on the hook for the debt. You also don’t have ownership of the asset. You get all the baggage without the reward.
Some people believe that because they are the co-signer the lender won’t bother them. You would be wrong. The lender will go after whoever is more likely to pay the debt, aka, You.
It will harm your credit if they miss a payment and this can create problems for your credit score. The additional loans will show up on your credit report and lender might not take the risk if it appears like you have a lot of debt out on your name.
You should realize that their credit is already bad and your friendship is the most compelling reason to make payments on time. Your friendship might be strong, but it often can’t fix their personal financial habits. If you co-sign mentally prepare yourself to take on the financial burden the additional debt will have on your life.
What you should say
Personally I can’t think of a good reason to co-sign for someone. There are so many options that are more likely to fix the underlying problems. Whether that means cutting back on expenses, looking for alternative financing, buying used, saving, looking for lower cost options or just doing without.
I am more interested in helping people achieve what they need through frugal methods. There are numerous options for funding a college education, obtaining housing, and getting transportation. You might need to be creative to develop a sound plan, but they are all possible.
I think the best response you can have when someone asks you to be their co-signer is to say no, but you’d be willing to help them navigate their situation. More debt will often add to their problems, not solve them. Spending a few hours researching the internet, brainstorming solutions, and making phone calls can show them you care about them and help get you closer to creating a sustainable solution.
My experience
My bad experience with co-signing took place during college. My mother needed a car and with the help of the car person convinced me to be her co-signer. I knew she had poor personal finance skills and that this car would make her budget too tight. After a year she stopped making payments. I had to fly home from college to get the car, made three months of back payments, my credit had been hurt, and I was now completely responsible for the remaining debt. I shouldn’t have co-signed. Looking bad I would take my advice and spent some time getting her rides where she needed to go, searched craigslist or a cheap car, or analyzed if she could have done without one. It would have been better for me and for her if I had said no and tried to help.
Co-Signing a loan means you are on the hook for the debt. You also don’t have ownership of the asset. You get all the baggage without the reward.
Some people believe that because they are the co-signer the lender won’t bother them. You would be wrong. The lender will go after whoever is more likely to pay the debt, aka, You.
It will harm your credit if they miss a payment and this can create problems for your credit score. The additional loans will show up on your credit report and lender might not take the risk if it appears like you have a lot of debt out on your name.
You should realize that their credit is already bad and your friendship is the most compelling reason to make payments on time. Your friendship might be strong, but it often can’t fix their personal financial habits. If you co-sign mentally prepare yourself to take on the financial burden the additional debt will have on your life.
What you should say
Personally I can’t think of a good reason to co-sign for someone. There are so many options that are more likely to fix the underlying problems. Whether that means cutting back on expenses, looking for alternative financing, buying used, saving, looking for lower cost options or just doing without.
I am more interested in helping people achieve what they need through frugal methods. There are numerous options for funding a college education, obtaining housing, and getting transportation. You might need to be creative to develop a sound plan, but they are all possible.
I think the best response you can have when someone asks you to be their co-signer is to say no, but you’d be willing to help them navigate their situation. More debt will often add to their problems, not solve them. Spending a few hours researching the internet, brainstorming solutions, and making phone calls can show them you care about them and help get you closer to creating a sustainable solution.
My experience
My bad experience with co-signing took place during college. My mother needed a car and with the help of the car person convinced me to be her co-signer. I knew she had poor personal finance skills and that this car would make her budget too tight. After a year she stopped making payments. I had to fly home from college to get the car, made three months of back payments, my credit had been hurt, and I was now completely responsible for the remaining debt. I shouldn’t have co-signed. Looking bad I would take my advice and spent some time getting her rides where she needed to go, searched craigslist or a cheap car, or analyzed if she could have done without one. It would have been better for me and for her if I had said no and tried to help.