Is Co-Signing on a Personal Loan a Good Idea

At some point in your life someone may come to you and ask for money. It might be a friend or a relative. If you have the money to give them outright that is a personal decision you are going to have to make. If you do not have the money, or do not want to use your own, then you may be faced with the question of co-signing on a loan. Let's see if we can answer the questions of whether co-signing on a personal loan is a good idea.

Did you know that if you co-sign the loan is going to show up on your credit report. Having a co-signed loan on your credit report will affect you debt and could be a factor in you getting a loan of your own someday if you need it. If you do it you have to get straight up front that the payments have to be made on time. The larger the loan the longer you are responsible so it is always a good idea to keep the amount as low as possible.

Since you are the loan you need to be able to access the loan information at anytime to see that it is being paid on time and what the balances are. Also be sure to have it set up that any late notices come to you as well as the borrower which will raise a red flag if the payments are behind.

If you are co-signing for a friend or family member do not feel shy about really understanding why they need the loan. You may even go so far as to offer your own version of credit counseling. Many friendships have been lost over money and not getting paid back is just about the worst thing for you. If the reason the loan is needed is poor money management then co-signing on a personal loan is not the answer. If it is due to something beyond their control then maybe it is o.k. to do.

One thing you can do to minimize your risk is ask the borrower purchases personal loan insurance. This will cover loan payments for a particular amount of time due to unemployment, illness, or death.

So is co-signing on a personal loan a good idea? As you can see it really depends on the circumstances. One thing is for certain. If you do it you need to be in control and try to protect yourself as much as possible.