Cosigning a loan where the credit applicant takes on a co-applicant who promises to repay the debt should the primary applicant fail to make payments. Although this may seem like a nice gesture, it must be treated in a far more serious manner. When someone cosigns for someone else’s debt, they become entirely responsible for the repayment of that debt. If the original debtor should lose their job, the credit card companies still want their payments. You are doing far more than vouching for the other person, they are saying they will repay the loan if the other person cannot. The debt will be recorded on the co-applicant’s credit history and will effect their credit score. But cosigning can be a monumental help to someone who is trying to get back on their feet. Before you cosign a loan, be sure to take these factors into account.
1. Will you need to take on debt? If you think you might need to apply for a loan sometime in the near future you might want to think twice about cosigning for someone. Taking on a lot of debt at once is bad for your credit score and can lead to being denied credit.
2.How long have you known the person? Cosigning for your sister is one thing, but putting all of your financial worth on the line for your friend’s sister is something else entirely. Don’t feel bad saying no to people.
3.Make sure you have a plan in place. If the person cannot make a payment, you want to know about it because it is going to hurt your credit score. Make sure you set up a plan ahead of time, so you are ready to help out with the payments if need be.
Cosigning a loan for someone can be a very tricky proposition. Be sure to think about how comfortable you are with putting your hard earned money in someone else’s hands, because that’s exactly what you are doing when you cosign for a loan.