Don’t give in. We repeat: don’t give in. No matter how much you love that aunt, daughter, best friend, or your parents, you should never cosign on any of their loans. We have yet to hear a story about a positive cosigning experience.
What’s the Big Deal?
When you cosign loans, you assume responsibility for paying up should the debtor be unable to do so. Despite the best intentions of the original borrower, you, the cosigner, will almost always end up paying for the loan. Why is this? Well, there’s a reason why you were asked to cosign on this person’s loans…
If a borrower has no credit or a bad credit score, no lender wants to take the risk of giving them a loan that won’t be repaid. So, in order to allow this person to borrow money and to minimize the risk of the loan, you, a responsible borrower with a good credit score, are asked to cosign. Should the borrower default, you are then responsible to pay the loan. Should you default, your credit score is affected (and you have an added debt) as if you were the original borrower.
Not only can this bring you some financial troubles, but depending on your financial situation and the size of the loan, it could result in you being threatened by bankruptcy! Financial drama aside, there’s sure to be some stress on your relationship. Whenever money (especially debt) comes between two people, it can be hard to focus on anything else in the relationship.
Do yourself and do the would-be-borrower a big favor, and refuse to cosign on their loans! You might even save yourself and that person from potential bankruptcy.