Skip to main content

Cosigning a Loan for a Friend

 What is Cosigning a Loan?

When you cosign a loan for a friend you are telling the lender that if the person on the loan does not make the payments that you will.  

If your friend does not have good credit there is probably a reason.  They have missed payments in the past.  They are also likely to miss payments in the future.

If they miss a payment on the loan you cosigned it will show up as a missed payment on your credit report and on their credit report.  

You will not be notified that the payment has not been made until it is already late.  Then you will see it on your credit report as a missed payment.  Ouch.

Rick W. and his Daughter

A friend of mine, Rick, cosigned a car loan for his adult daughter (28 years old) and her husband.  His daughter and her husband both work and make good money but have bad credit. 

My friend told them it was important to make the payments on time.   After a while he checked his credit and they had one late payment. 

They lived right next door and did not bother to tell him they were going to miss a payment. 

It lowered his score by 60 points.  He was saving up and trying to build his credit to buy a house. He still has not bought a house.

Never Cosign a loan

 

My recommendation: You will be better off to just give them the money rather than cosign.  If they are an adult and have bad credit, they have a history of not making payments on time. 


If they have had a medical emergency they may have had no choice on missing payments.  However most of the time bad credit is caused by not getting around to making payments on time.


I would Never cosign a loan. 


Instead of Cosigning a Loan for a Friend  

Another option is to borrow the money yourself buy the item and have them pay you back.

 

This way you will be sure the payment gets made and your credit will not take a hit if they miss a payment.


Hazards of Cosigning a Loan



Cosigning a loan can be risky and potentially hazardous for the cosigner. Here are some hazards of cosigning a loan:

  • Responsibility for the loan:
    As a cosigner, you are equally responsible for repaying the loan. If the primary borrower fails to make payments, the lender can pursue the cosigner for the full amount owed.
  • Damage to credit score:
    If the primary borrower misses payments or defaults on the loan, it can negatively impact both the primary borrower's and cosigner's credit score.
  • Legal action:
    If the primary borrower is does not repay the loan, the lender can take legal action against both the primary borrower and cosigner. This could result in wage garnishment, liens on property, or other legal consequences.
  • Limitations on future borrowing:
    Cosigning a loan can affect the cosigner's ability to obtain credit in the future. The cosigned loan will appear on the cosigner's credit report and may impact their debt-to-income ratio, potentially making it harder to qualify for future loans or credit.
  • Strained relationships:
    If the primary borrower fails to make payments, it can put a strain on the relationship between the primary borrower and cosigner. In some cases, cosigning a loan can even lead to damaged relationships or ruined friendships.

Overall, cosigning a loan is a serious financial responsibility that should not be taken lightly. Before cosigning a loan, it's important to carefully consider the risks and potential consequences.
Labels:

Comments

Post a Comment

Popular posts from this blog

New Account Notification

I have four different Free ways to be notified of a new account being opened in my name on my Social Security number.  This is the critical notification that your Identity is being stolen if you did not just open a new credit line. My Discover card, Credit Karma, Chase Bank, and Credit Sesame accounts all notify me if there has been a new account opened in my name with my Social Security number.   New Credit Account I recently opened a new Home Depot* credit card.  You know those Black Friday tool sales sucked me in again.  I do it almost every year.   Anyway right on time the next day and the day after I opened a new account I was notified by Credit Karma, Discover, Chase Bank, and Credit Sessame. Why This is Important Any time your credit is checked you need to be notified.  If you did not apply for new credit it is likely to mean someone is attempting to STEAL Your Identity.   The first step in Identity Theft is for the thief to apply...
Post a Comment
Read more

Bank Fees and How to Avoid Them

I hate to pay fees. Little fees, big fees, they all irritate me. In the old days of checking accounts where local companies all accepted checks, banks used to charge $15 to $25 on bounced checks. In my area of Montana they made enough in Bad Check fees to pay all of their full time tellers.  A friend who was a banker told me this. Fees are a huge revenue source for banks. I try to avoid most bank fees. My checking account is does not have a monthly fee. My savings account does not have a yearly fee.   I do have an annual fee on my lines of credit, HELOCs, but I have not been able to talk my banker out of those fees. Debit Cards Fees will grow quickly if you don't pay attention. Debit card fees can vary depending on the bank or financial institution you use, as well as the type of account and the transaction type. Here are some common fees associated with debit card usage: ATM withdrawal fees : When you use an ATM that is not owned by your bank or financial institutio...
Post a Comment
Read more

My Introduction to Airline Miles

 I was first introduced to airline miles by a friend who had just gotten a United Airline Chase Credit Card.   I signed up and started getting airline miles for all of my business purchases.  Just for signing up I received 50,000 miles.  I believe I had to spend $3,000 in the first three months to get the 50,000 points.  This was a great bonus, two free flights anywhere in the US for spending $3,000 which I would have spent anyway.   The annual fee for this card is $95 which is waived for the first year. It took 25,000 airline miles to get one round trip ticket anywhere in the US.  Short flights would only cost 20,000 airline miles. I used just this Chase United card for a couple of years and earned a couple hundred thousand Airline Miles on the purchases my business made.   More Chase Points Cards I applied for and got more Chase credit cards for points.  I got the first Chase Freedom card with no annual fee.  This card o...
Post a Comment
Read more