Is Co-Signing for a Loan Worth the Risk?

Co-signing for any type of loan can evolve into the worse financial decision a person can make. Unless you are co-signing for: 1) someone you can trust 110%; 2) someone who is committed to paying the monthly loan payments and; 3) someone who is committed to staying employed in a position which enables them to handle all of their financial obligations, do not sign your name to a loan agreement as a co-signer. If you decide to co-sign, start budgeting the loan payments.

This might be cruel to say but it does not matter if it is your mother, father, sister, brother, child or any other relative, do not sign your name. Relatives are the ones to definitely avoid. It does not even matter if it is your best friend, do not sign your name. Regardless of your relationship with this relative or best friend, the relationship begins to deteriorate immediately when payments are not current and the financial responsibility is solely on you. You can try to take the person to court for defaulting on the loan, but why waste your time and money? If they were not able to pay the monthly loan payments, how will you win in court?

Before co-signing for a loan, if you think about your decision more realistically, you would not take the energy to even think about co-signing at all. Think about this: a) if the person's credit and past financial history was as good as yours, they would not be asking you to co-sign in the first place; b) if the financial institution feels the person is a risk and will not approve a loan without a co-signer as a guarantee, you should be leery about placing your good credit at risk and; c) will you be financially able to repay the debt (with no benefit to you) in the future, if the person defaults on the loan.

The financial institution will place the financial obligation solely on the co-signer if the loan is in default, regardless if the co-signer has the resources to fulfill this financial obligation or not. The financial institution just wants the loan paid. Basically, you signed the loan as the applicant and the other person signed as the second applicant on the loan because your credit score was higher. This loan is usually opened under an account in your name, which puts the financial responsibility on you, the account holder. The financial institution will also freeze your account or withdraw any funds deposited into your account if the monthly loan payments are not current. If you do not want a judgment filed against you, which will allow the financial institution to garnish your wages and bank account, you are expected to pay the loan as agreed when you signed the loan agreement.

When you care about or love someone you want to see them do well and you try to give when you can and in any way you can. Most times you might even know what the end results will probably be, as you have been down this same road over and over again, but you still give anyway. You see all the signs, but ignore them all. It is not a good feeling in the end when that person betrays you. In reality, you are just enabling the person by your constant giving. They will never get on the right path in life unless you put an end to it. If the person is able and willing, they are quite capable of obtaining a position which will allow them to handle all of their financial obligations and they should be able to get their credit score where it needs to be, so they do not need a co-signer. If they are not willing to take responsibility to better themselves, you just need to step aside and show some tough love.

You finally open your eyes and re-evaluate your giving and the financial debt you have acquired. Being responsible for someone else's debt can be a life awakening, life challenging and an undesirable life lesson to finally learn. I believe my experiences with co-signing were definitely the worse lessons in life I had to learn. The day comes when you are no longer able to give and you have to adjust your budget because you have helped someone who did not commit to their financial obligation. The really sad part about it all is the person just goes on living life as usual, with not one concern about how they left you with their debt, that you now have to pay or if you are even able to pay it.

In the end, because you did a favor by co-signing for someone and they default on the loan, your credit score drops, you might not be able to get credit for yourself when you need it, and you are placed in a position that can effect your future financial stability. Take this advice from someone who truly knows, don't ever sign your name to a loan agreement as a co-signer unless you are prepared to face the financial consequences if the person defaults on the loan.