I once paid a car loan for a car that I didn’t own. I made the mistake of cosigning a loan for a friend and they left town with the car. I was the easiest person to find so the bank held me responsible.
Why does the borrower need a cosigner
- They have a poor credit history.
- They already have too much debt.
- They are trying to consolidate debt into one loan-they are trying to get back on track. The bank wants a cosigner because they haven’t made payments on time in the past.
- They can’t get a loan any other way.
If the bank doesn’t feel safe lending the person money, why should you?
When you cosign, you take full responsibility for the loan, even though the loan is in the other person’s name. You are not the payer of last resort, often the bank will come after you first.
If the borrower doesn’t make their payments on time, your credit rating/score will suffer and this may affect your ability to borrow money in the future.
If the person is a loved one, it will be difficult, but if you can’t afford to pay off the loan, just say no!
I realize there are some situations where you feel you must cosign, in that case, be sure your name is on the title of the asset that is being offered as collateral if possible and prepare yourself to pay the loan.