Be Cautious Getting Involved As A Co-signer On A Loan

By: Robert Bain

Having good credit is very important for all individuals because it is going to affect your ability to purchase things in the future. If you have decent credit, you may be able to get a credit card but it will have high interest applied to it. You may be able to buy a vehicle or qualify for a home loan, but you are going to pay more in interest for them as well. All of these scenarios are going to cost you more money in the long run - and it can add up to hundreds of thousands of dollars.

Some people turn to a co-signer because they have simply been frivolous with their credit. They haven't made it a priority to repay things when they should and as a result they can't get any other credit. For others, they had every intention of repaying their loans as agreed. However, life through them some fast curve balls that made it impossible to do. A third category is those that have never had credit so there is nothing to measure them by in the eyes of a lender.

You can be sure it is never easy for someone to have to approach another individual to co-sign on a loan. While you may be flattered that they came to you, always look out for your own well being first. You certainly don't want to ruin your own credit because you have through a life boat out there to someone else. Any time you co-sign on a loan there is a risk that it won't get repaid according to the terms. That means the lender is going to be coming to you for what is owed.

Being a co-signer on a loan for someone can make it harder for you to get the credit you want for yourself. Even if the other party is paying it, you are still attached to it. Legally, you are responsible for that payment if they don't make it. Therefore, a lender may decide that you have extended your available income too much and it would be a high risk for them to lend you money at that time.

Even when the other party is doing a fabulous job of making the payments, there can still be issues you need to be aware of. You don't want your next credit application to be turned down because the lender is using a calculation that shows your debt ratio compared to your income is too high. They will likely be including all of what is due on that loan you co-signed on. If it is a high dollar amount as a well as has a long term applied to it, this could be damage you can't offset.

As you can see, there are many issues to consider when you are thinking about being a co-signer. If you have a bad feeling about it, then trust your gut reaction and don't get involved. You may feel better making such a decision after you have talked in detail about the specifics of the loan. Some people just have a pattern in their history of not paying their bills so you want to steer clear of co-signing anything for them.

Should you decide to co-sign on a loan with someone, there should be some guidelines in place. If they aren't willing to agree to your guidelines, then tell them you aren't able to help them. Since your credit is going to be on the line as well, you should be talking to the lender with them. Find out the terms of the loan including the length of time and the payments. Set it up so that you are notified if they don't make the payment. You can also ask the individual to show you proof each month that the payment was made.

Some individuals just aren't comfortable co-signing on loans for anyone. This is a personal choice and it should be respected. If you don't feel confident that they individual is going to repay the loan then don't co-sign for them. If you also know you can't cover the payment, then don't do it. They may be able to pay the loan right now but that may not be the case six months from now.

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Robert Bain is fascinated by the secret credit industry. He follows personal credit related issues such as credit cards, debt relief, home owners loans, andmortgages.

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