You may have been approached by a family member or friend to co-sign a loan for them. Assurances are made that they will make payments. You feel obliged because you don’t want to disappoint them. It won’t cost you anything…or will it?
When we change our thinking about the loan it might make more sense. They don’t qualify for the loan unless you co-sign, therefore they couldn’t get it on their own. If all of a sudden they can’t make the payments you are liable. The lender could even choose to sue you, put a lien on your property or legally garnish your wages.
Money isn’t the only thing you will lose, your credit rating could decline also. Also if you co-sign a loan you may affect your debt to income ratio and being able to borrow money yourself.
Co-signing makes you obligated to repay that debit if the primary signer can’t. You might be out some money without any recourse to recover this loss because you don’t control the asset. This negative impact on your credit score could take years to recover.
Before taking a giant leap of faith like this, consider all the affects that co-signing a loan could have on you and your future.
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