A friend or family member is asking you to co-sign for a loan. Should you do it? Here are some things that you should consider before deciding whether to co-sign for someone else’s loan.
What Co-Signing for a Loan Means
Being a co-signer makes you personally liable for the debt. Even though your name may not be the primary one listed, it has the same legal impact. If the primary borrower (your friend or family member) fails to make payments, the lender will come after you for payment. Furthermore, payment history (good or bad) will be reflected on your credit report as well.
Why a Co-Signer Is Needed
If someone is asking you to co-sign for a loan, they probably do not qualify for it on their own. Most likely, either their income or their credit score is too low. There are certainly understandable situations, such as a previous job loss or divorce, that may have led to a low credit score. However, if poor credit behavior (paying late, failing to pay at all, etc.) is the reason, then you should think about how likely they are to repeat that behavior.
Should You Co-Sign for Someone Else’s Loan
In most cases, it is not a good idea to co-sign for someone else’s loan. The financial liability and potential impact to your credit score is too great. A poor credit score can prevent you from making your own purchases (car or home) or result in significantly higher interest rates on any type of loan or credit card. Even worse, you could be required to pay back a loan that is not even yours. If someone has come to you for help with co-signing for a loan, suggest that they look into credit repair services. An increased credit score may allow them to get approved on their own, without a co-signer. Contact FIT Credit at 844-286-3914 for a free consultation.