When You Co-sign for a Loan, You Are Taking on that Person's Debt

The old adage, neither a borrower nor a lender be could not be more apparent than when you co-sign on a loan for someone. You always hear about people co-signing for a friend, relative or associate. It gets even more complicated, when the person you are helping to obtain that loan, has no credit, bad credit or has an enormous credit card debt.

Most people do not realize that when a person says, "I have poor credit or no credit," what that individual is really saying is that he or she does not pay their bills on time or neglects to make payments. It is also important to understand that when you co-sign for anyone, you are taking on his or her debt until that individual has paid that obligation in full. You guarantee the lender that if the borrower neglects to pay the outstanding amount, you will be responsible for paying off that loan. You may also end up paying for late fees, collection charges and legal damages if the lender decides to go after you for the money, making the amount you co-signed for more. If you do not make due on that loan, your credit rating will be hurt, and the lender can garnish your wages and seize your property and other assets.

Therefore, the next time someone asks you to co-sign for a car, cell phone, an apartment, a major appliance or any big-ticket item, take heed to the following:

When you co-sign for someone, you make a promise to pay back that loan in full, if the borrower defaults on his or her payments.

When a borrower indicates that he or she has problems getting credit, it is a clue that the individual has problems paying their bills.

If the person requesting the loan is working, he or she can lend him or herself the money.

There is no law saying that a person must have that loan now. If having that loan is important, then he or she can get a second job and finance his or her own loan, or postpone that sought after item.

If you already have excellent credit, do not take the risk and have someone else destroy your good name.

It is almost certain that the borrower will lapse in his or her payments, and most likely, you will end up in civil court trying to retrieve your money.

It is also important to remember that if your credit is ruined, it may affect your credit score, your ability to find employment or to purchase a home.

Finally, to avoid any misunderstandings, lost friendships or hostilities from family members, never co-sign for anyone, unless you have disposal income, or you just want to throw good money after bad.