Anyone with a steady stable of friends and relatives has probably been asked for a loan at some point in their lives. Just an extra couple of bucks to help them get through whatever financial hardship they’re currently facing.
Sometimes though, people like to go above and beyond simply asking to borrow a couple of bucks and will ask you to cosign a loan for them. This is how relationships turn sour (from a financial standpoint, anyway), and can leave one or both parties in need of credit score repair before they know it.
Here are just a few good reasons why you should think twice before (co)signing on the dotted line.
Don’t expect to get the money back
Think of a cosigned loan like you would any other type of personal loan, i.e. as a gift that you shouldn’t count on being repaid; except this type of loan can have pretty severe consequences if no one repays it. Whoever’s asking you to cosign is likely only doing so because they’ve been denied the loan on their own. This means that the lender already deems the person looking for the loan as a potential risk for not repaying the debt. This could be for any number of reasons; they could have a bad credit history or no credit at all.
Help me, best friend in the whole world; you’re my only hope!
Say your very best buddy has asked you to cosign a loan for them. They were turned down by the bank and really need this loan, and you’re their only means of making it work. Now is the time to weigh your options and see just what the monetary value of your friendship is. If you do decide to cosign a loan, you are just as financially responsible for it as the other person on the agreement.
So what happens when your friend is suddenly unable to make the debt payments himself? Well, now it’s your problem. And those lenders are gonna come calling, so you don’t want to be the one left without a chair when the music stops.
Another good reason not to cosign a loan with a friend: Money puts a serious strain on ANY relationship. No one wants to have to check up on a friend or loved one to make sure they’re keeping up with their bills, especially if they have an actual stake in those bills. Imagine having to deal with those bills on your own should your friend default on them.
So what can I do to help?
For those of you who just can’t stand the thought of not helping your fellow man, there are some ways you can help without putting yourself right there in the hole too. Chances are the person in need of a loan can be helped financially in other, less risky ways. Help them with a smaller loan or other favors that you don’t necessarily expect to be repaid.
This way, you’ll still have helped them with their financial troubles without too much risk to either your friendship or your own credit.
This is a guest post brought to you by Marc Chase, President of Product Development for My Credit Group, a website offering credit repair services and education.
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There are very few people I would cosign a loan! Specifically, my son and daughter, although they do not need it. I do not know anyone well enough to go on a contract for them.
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