Is It Wise To Be A Co-signer On A Loan?
Co-signing a loan for someone is a huge commitment so think about it before you put you name on that dotted line. You may be a good candidate to be a co-signer because you have worked hard to be responsible with your own credit. This means you can get the funding you need without too much effort. You also know you will be able to get good interest rates on credit cards, vehicle purchases, and buying a home. This will save you money that would otherwise be wasted to pay for high interest rates.
There are many reasons why a person may have bad credit - they could have a problem with managing money. They can also have gone through a divorce, lost a job, or had huge medical bills that affected the amount of money available for paying their bills as they once could. Other individuals don’t have any credit established so it is also hard for them to get the credit they need at all, let alone at a decent interest rate.
When an individual needs a co-signer in order to get a loan, they are going to turn to those they have a good relationship with. They are also going to pursue those that appear to be responsible with their money. It is important to understand that you are not obligated to be a co-signer on a loan. You do have the right to tell them it isn’t something you are able to do. However, once you do sign that loan with them you are committed to it until it has been paid for in full.
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.
However, many individuals that need a co-signer really are committed to paying that bill on time. They make it a priority because they do value the relationship that is in place and they don’t want to harm it in any way. They also don’t want to burden the co-signer with having to cover their payments.
You need to carefully evaluate the situation to determine if you are willing to be a co-signer or not. If the person knows you well enough to ask, then you should be able to honestly talk to them about it. Discuss the situation completely including what they need the loan for, and the circumstances that have lead them to need assistance. You will have to use your own judgment to determine if this is something you are willing to help them with or not.
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.
Robert Bain is fascinated by the secret credit industry. He follows personal credit related issues such as credit cards, debt relief, home owners loans, and mortgages.
Tags: credit cards, credit scams, personal credit, secured credit, unsecured credit
