4 Reasons to Never Cosign a Loan

Some day your best friend or a family member may approach you and ask you to cosign a loan. What do you do in that instance? On one end you care about them and want to help. On the other end you have nothing to gain and everything to lose. I will make the decision easy for you. Heed my advice and never cosign a loan for someone. Below are some reasons why you need to avoid this.

Credit Score at Risk – If the person you cosigned for misses a payment, those missed payments will reflect on your credit report. Even one missed payment can stay on your history for years and damage the score you have worked so hard to build up.

You’re Also Responsible – When you cosign on a loan, it’s not only the person you cosigned for that is responsible for the loan amount but you as well. If you’re seriously considering it, make sure to take on something that is manageable like an amount below five figures just in case anything happens.

Consideration of your Future – As I stated previously when you cosign a loan, you’re also responsible for that debt. That means if you’re planning on applying for a mortgage in the future, a lender could consider you a risk and that can negatively impact the interest rates you qualify for.

Relationship Status – This is the biggest reason why you should avoid cosigning a loan for a friend or family member. Money can cause relationships to become strained, and it’d be a tragedy for a falling out to occur over a dispute over money.

Instead of cosigning, I advise looking at alternatives. You can advise the person to wait and take the time to increase their credit score, so they qualify for a loan on their own. Secondly, you can advise saving a bigger down payment which will make a lender more comfortable lending money. Steering friends and family in the directions I mentioned above can really help you avoid a financial jam.