Co-sign a loan? Think carefully …

There are many unconsidered risks when you co-sign a loan.

Your credit rating goes down because your credit ratio has gone up with the added debt … yes it is considered your debt in the eyes of the credit bureaus! Your own ability to borrow is reduced because of your credit utilization and possibly lower credit score. As long as that co-signed loan is unpaid, your own credit is held hostage too. Alternatively, your own interest rate may be higher on new loans too.

“According to the Federal Trade Commission (FTC), studies have shown that of all loans that have had co-signers and gone into default, 75% end up being paid by the co-signer.”

Your short term help may turn into life long hurt feelings if the real borrower doesn’t repay and you end up with the bill. Often times it is best to have short term hurt feelings by not co-signing than the alternative hurt feelings having to repay their loan. Instead, maybe offer a cash gift to help them out. At least the limits of your ability to help them are explicit in that case.

The lender you co-signed for won’t talk to you about the loan … that’s right … you have no borrower rights … at least not until you become the borrower when the original borrower defaults. You will have no idea if the loan is in danger until it is too late. All you are is a guarantor for the loan.


To learn more, simply Google “co signing loans danger” … think carefully. It may be hard to say no … but those feelings soon go away. Angry feelings having to repay a loan for someone, or the realization that your own credit ability has been harmed, rarely go away.

, ,

2 Responses to Co-sign a loan? Think carefully …

  1. Hard Money Arrowbear Lake April 4, 2013 at 12:39 am #

    Nice and very useful information thanks for sharing this..


  1. Asked to co-sign a loan for someone? Bad idea! | Better Financial Education Blog - March 6, 2013

    […] Original blog on topic. […]

Leave a Reply