Cosigning a loan is probably one of the things people do in the name of goodwill yet end up against their favor.
It’s a common plot twist when someone cosigns a loan but eventually became the target of debt collectors because the original debtor has gone somewhere nobody can find.
If stories like these aren’t enough to convince you against cosigning for a loan, here are some other reasons.
You will be liable for the debt
What surprises us is that many people cosign without knowing the consequences. Your signature may just be a few strokes of a pen but it is powerful enough to make binding documents and contracts. It’s your word, your promise, stamped on a dotted line.
This is an irritating fact for many because they did not the ones who borrowed, yet that’s just how it works. If for whatever reason your cosigner fails to pay, the lender will come after you. Your signature is the evidence that you allow them to collect from you.
You can get sued
No kidding. This is a serious consequence in case your trusted friend defaults on a loan. Why would the lender sue you? Because they have the right to do so. When everything goes according to their plan, you could be asked to pay for the penalty fees or your wages could even be garnished.
Your own loan application could suffer
If you’re going to need your solid credit for an important purchase, lenders might have to deny your application if you already have too much credit stacked under your name. For lenders, taking on too many loans at the same time means higher risk of not getting paid back, that’s why they hesitate to extend you another credit.
It puts a strain on relationships
Imagine having to tell off a close friend because of a late payment, but he or she makes seemingly valid excuses all the time. Your friend just had an expensive date and forgot about the monthly bill. She got sick and didn’t make enough money that month. On and on until arguments start and you cross out one friend on your list.
You could go bankrupt
Okay, it’s great that you have a good credit score and are able to cosign for a loan. But what if it’s pay up time, the creditors are coming after you and you barely have enough to cover the debt even if you’ve been living a modest life? Worst-case scenario is you could find yourself filing for bankruptcy as debts and fees pile up, without the original borrower’s lifting a finger to help you.
Cosigning for Your Spouse
In the U.S. about 40-50% of marriages end up in divorce.
At the time of marriage and bliss, couples take on joint accounts or cosign loans. That’s all fine when both parties are responsible credit card holders as far as payment history or credit score can tell. However, it is not uncommon to hear stories of people getting collection calls because of unpaid loans that they had cosigned for their partners.
Cosigning for a loan is a responsibility. Think twice before taking it!