If you are considering co-signing on a loan for someone to help them out, you need to be very careful. There are horror stories out there from innocent people like yourself that just wanted to help out a friend or family member. As result though they ended up with a ruined relationship and damage to their own credit. If you have been able to keep your own credit on track then you should be congratulated. It can be difficult but it does pay off in the end when you are able to get the credit you need at very good terms.
Some people turn to a co-signer because they have simply been frivolous with their credit. They haven't made it a priority to repay things when they should and as a result they can't get any other credit. For others, they had every intention of repaying their loans as agreed. However, life through them some fast curve balls that made it impossible to do. A third category is those that have never had credit so there is nothing to measure them by in the eyes of a lender.
You can be sure it is never easy for someone to have to approach another individual to co-sign on a loan. While you may be flattered that they came to you, always look out for your own well being first. You certainly don't want to ruin your own credit because you have through a life boat out there to someone else. Any time you co-sign on a loan there is a risk that it won't get repaid according to the terms. That means the lender is going to be coming to you for what is owed.
Some individuals have found being a co-signer on a loan makes it difficult for them to get a loan of their own. It can also be very stressful for the relationship when one individual is a co-signer. Seeing someone blowing their money and not making those payments can result in the relationship not being salvageable.
Even when the other party is doing a fabulous job of making the payments, there can still be issues you need to be aware of. You don't want your next credit application to be turned down because the lender is using a calculation that shows your debt ratio compared to your income is too high. They will likely be including all of what is due on that loan you co-signed on. If it is a high dollar amount as a well as has a long term applied to it, this could be damage you can't offset.
As you can see, there are many issues to consider when you are thinking about being a co-signer. If you have a bad feeling about it, then trust your gut reaction and don't get involved. You may feel better making such a decision after you have talked in detail about the specifics of the loan. Some people just have a pattern in their history of not paying their bills so you want to steer clear of co-signing anything for them.
The best advice I can give you if you do want to be a co-signer for someone is to stay on top of the information. Work with the lender too so you can get notices of payments that have been made, the amount due, and any past due issues. You can also have the individual give you a copy of their canceled check or the money order statement so you know each payment is being made on time. They may not like doing this, but they need to understand what is on the line for you and respect it.
Some individuals just aren't comfortable co-signing on loans for anyone. This is a personal choice and it should be respected. If you don't feel confident that they individual is going to repay the loan then don't co-sign for them. If you also know you can't cover the payment, then don't do it. They may be able to pay the loan right now but that may not be the case six months from now.

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Article Submitted By: RobertBain
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