Reasons You Should Never, Ever Cosign A Loan For Anyone
The word “co-signer” should send shivers up your spine. Thinking of co-signing for a loan with your spouse? Remember that about 50 percent of marriages result in divorce. Your child asked you to co-sign for a car? Just go ahead and buy the thing outright because if your child defaults on the loan, you’re going to be on the hook for the loan and the penalties. In this article, we’ll discuss a few reasons for NOT agreeing to co-sign for ANYONE – not a family member, co-worker or friend.
- Even if you’re not driving the car or living in the house that you’re considering co-signing for, you’re taking on all the risks of ownership if a payment is missed. In fact, the co-signer usually gets sued first if the situation goes to litigation. Why? Because you – with all of your good credit – were the reason the person was able to qualify to get the loan in the first place.
- If the lender is not in the mood to sue and merely wants to settle, your taxes could be severely impacted for the difference between what was owed and the settled amount. This is referred to as “debt forgiveness income.”
- Co-signing for someone else could affect you significantly in any future loans you may apply for. Lenders refer to this situation as someone having too much credit and is often used as a reason to deny a loan application.
- Once you sign as a co-signer, there’s no turning back. The only way your name can be removed is for the primary signer to refinance the loan because they will then have to re-qualify for the loan on their own.
- You can pretty much kiss your relationship with whomever you’re co-signing for goodbye. Few things come between friends and family like borrowed money. The one asking you to co-sign feels uncomfortable about asking you – or at least, they should – and you’re going to feel awkward asking about payment status.
The bottom line is this: co-signing on a loan for anyone is never a good idea. If you feel compelled, lend them some money with a written agreement on how it is to be repaid. But never put your credit on the line by co-signing documents with a lender. If you’d like more information on debt and bankruptcy issues, contact the skilled attorneys at Statewide Bankruptcy here in Arizona at (602) 225)-2222.