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Should you co-sign for someone if they ask you? Well… you really need to think long and hard about this and make sure you’re ready and able to take on that responsibility. People often get confused when they hear the term co-sign. Sometimes people think they are not really responsible for the debt; they think they are merely helping someone out. Make no mistake; if you co-sign a loan for someone, it is exactly the same as if you borrowed the money yourself! By co-signing on a loan you are accepting full responsibility for payment of that loan, including late charges and any fees associated with collecting the debt.
When someone is interested in co-signing, but still somewhat hesitant, I often recommend that they may consider being primary on the loan. By going first on the loan, they ensure that they get the initial contact from the bank if the loan is late and can address it ASAP before it goes delinquent by 30 days or more. If you don’t want to go first on the loan - perhaps you are co-signing for one of your children and want them to feel like it’s really their loan - just be prepared to stay on top of the loan to catch any issues early.
One of the most common co-signing problems we see is the non-related co-signer. For example, a boyfriend /girlfriend situation where one has bad credit and the other has good credit. We see it time and time again, where intentions are good, but the couple breaks up and the loan isn’t being paid. Then the co-signer is told they need to pay and quite often says “but, that’s not my loan. I just co-signed for them.”
Be careful. Think about the relationship between yourself and the person asking you to co-sign. Also consider the amount of the loan: is it too much for that person? Do you want to co-sign for a $30,000 truck loan for a friend? Do you even have a loan that size yourself? Could you pay it if you had to? We often see scenarios where the person needing a co-signer is looking to start out in a vehicle that is much too expensive for their first loan. If you are agreeing to co sign, you can say “let’s try to find something cheaper than this to get you started.” Just remember that at the end of the day, whatever you have agreed to, it’s still your responsibility to pay if the borrower does not live up to their end of the bargain.
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