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To Cosign or Not to Cosign

What is a Cosigned Loan?

A cosigned loan, is a loan where a second party, the cosigner, agrees to be equally responsible for repaying the loan if the primary borrower fails to do so. The cosigner is providing a guarantee to the lender that the loan will be repaid, even if the primary borrower defaults. 

My Advice to a Cosigner

Never ever cosign a loan.  You are risking your credit rating, which can be very fragile, for someone who either has no credit or has bad credit.  In either of these cases you should not risk your credit.

A Friend and His Daughter

A friend of mine cosigned a truck loan for his adult daughter (28 years old) and her husband.  They both work and make good money, but have bad credit.  He told them he would cosign for their nearly new truck, however it was very important for them to make the payments on time.   After a year he checked his credit and they had a late payment that was 60 days late.  They lived right next door and did not bother to tell him.  It lowered his score by over 60 points.    

Never Cosign a loan 

My recommendation…. You will be better off to just give them the money rather than cosign.  If they are an adult and have bad credit, they have a history of not making payments on time.  If they have had a medical emergency they may have had no choice on missing payments.  I still would not cosign. 


How to Help without Cosigning  

Another option is to borrow the money yourself buy the item and have them pay you back.  If they miss a payment you will know it right away and you can make the payment and not lose your credit rating. If they were good at making payments on time they would have good credit.


How Cosigning Affects Your Credit

If you cosign a loan it will have the same effect on your credit score as if you borrowed the money yourself. The cosigned loan will be reported on your credit report as another debt owed. It will impact your debt to available credit and your overall debt.

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