Whether or not to cosign a loan is a difficult decision to make, whether you’re approached by family or by a friend. On the one hand, you want to help your friend or family member and you don’t want them to think that you don’t trust them. On the other hand, it can be an uneasy feeling knowing that you’re on the line if an emergency happens to the person asking for help and if anything happens it can damage your credit and leave you high and dry.
So if anyone asks you if you could help them out by cosigning alone in the coming holiday weeks, here’s what you need to know and do to decide if this is the right decision for you.
Think about it:
1. Can you afford to take out a loan right now? If you can’t, then this is probably not a good decision for you. When you co-sign a loan you should accept the responsibility as if you’re the only one signing. If something goes wrong, you become liable and you have the same amount of responsibility for the loan as if it were your own.
2. Can you afford to have your credit report pulled? The loan company will have to pull your credit report to determine if you are creditworthy, just as they would with the person you are signing with. If your credit isn’t in its best health, you may notice a drop in your score from the pull on your credit, which could be harmful to you in the long run as you try to find your own loans and credit.
3. Can you afford the amount of debt that the loan is for? Should something happen and the loan become entirely your responsibility, you should make sure that you are capable of taking care of the entire amount of the debt on your own. Never co-sign a loan that you couldn’t take on all by yourself.
4. Can you be the one to send the payments to the lender or does it have to be the person you are signing with? You can ask that the bills all be sent to you, and ask that the person you are signing for send you their payments which you can then pay to the lender. This allows you to have full and total control over the payments of the loan. You will always know if the other party isn’t making payments or isn’t making a full payment. Your credit score will go down if timely payments are not made on the account, not just the other signer’s.
These are the most important things to consider when you think about co-signing a loan for someone. Knowing your limits and being fully aware of the entire financial situation will help protect you and the person you are trying to help by knowing that you’re both making a positive financial move.
If your credit has been torn apart by a co-signed loan that someone else defaulted on, or if you need a loan but don’t want to burden your family and friends with co-signing, please contact us at Scott McCorkle’s Credit Capitol to see if we can get you into a new auto loan today!
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