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For established adults with good credit, there may come a time when a loved one asks for help to qualify for a loan. Of course, you\u2019d love to use your good credit history and financial stability to help, but co-signing a loan is a serious obligation that you need to consider carefully. Even with the most trusted and dear loved ones, you should very carefully consider any request.<\/p>\n
Here are five questions you should ask before deciding whether you can cosign a loan:<\/p>\n
Why Can\u2019t the Borrower Qualify Themselves?<\/strong><\/p>\n Often, young adults can\u2019t qualify for loans because they have little to no credit history. This is just a condition due to their age. However, there are other reasons a person might not be able to qualify \u2013 including insufficient income or poor credit due to missing payments. Make sure you understand the borrower\u2019s situation \u2013 and why they need your help \u2013 before you sign anything legally binding.<\/p>\n How Could It Affect My Credit?<\/strong><\/p>\n Even though you aren\u2019t the primary borrower, the debt on any co-signed loans will show up on your credit report and impact your credit score \u2013 including your credit utilization and total debt amount. In the future, lenders will see this debt as your <\/em>debt. In addition, if the primary borrower misses a payment or defaults, they can do enormous damage to your credit score that will stay with you for seven years.<\/p>\n How Could It Affect My Finances?<\/strong><\/p>\n Simply put, you should never co-sign a loan you can\u2019t afford to pay yourself. Even if your primary borrower is a dependable person who pays all their bills on time, a loss of income or emergency could cause them to fall behind on payments. If the borrower defaults, you could be liable for the full amount of debt. In some states, lenders can even hold you responsible without even trying to first collect from the primary borrower. If you used collateral to qualify, your property could be confiscated.<\/p>\n Therefore, you need to know if you can afford the monthly payment, and if it would negatively affect your ability to afford your other financial obligations. If it would, you should not co-sign the loan.<\/p>\n Can The Primary Borrower Afford the Loan?<\/strong><\/p>\n You also need to know about the borrower\u2019s finances. Can they afford the payment on their loan they\u2019re applying for? If it seems unrealistic based on their income, you should decline to co-sign. Helping your borrower to live outside their means won\u2019t actually help them in the long run.<\/p>\n