Do you want to help your family through thick and thin and give friends a hand? Great! Are you thinking about cosigning on your good friend or family member’s loans? You may want to think twice about doing so, so that you can protect your personal finances to the best of your ability.
Why It’s Dangerous
If we sound like we’re being too harsh, it’s because we take cosigning very seriously. Co-signing on loans can cause financial problems in the future. When you cosign on loans, you take full responsibility for those loans, just as if it were your name the money was being lent to. And, that’s because when you cosign, you share an equal responsibility.
Cosigning is a method lenders have come up with to make money. Essentially, the borrower isn’t reliable enough to take loans out in their own name (this could be due to bad credit or lack of credit), so the lender has you, a responsible borrower with good credit, agree to pay the loans should the original borrower default.
What do you get out of it? It is a good feeling to help others, but make sure that you do so intelligently!
The lesson here is: only cosign for individuals that are extremely responsible. It might be a good idea to consult with a bankruptcy lawyer to get good advice on the subject before doing so. If you arm yourself with the right knowledge and understand the full responsibility that is taken on by cosigning, you’ll be able to better protect yourself and your finances. Not only does this help you, it also helps your family member or friend in the long run!
When the borrower who seeks your help gains a little more experience in the financial world, chances are they’ll understand and thank you for being responsible back when they didn’t know what they were asking for!