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Think Twice Before Co-Signing a Loan

Co-Signing a Loan, Home Mortgage, Risks of Co-Signing a Loan

Think Twice Before Co-Signing a Loan


Before agreeing to co-sign on a loan, make sure you consider the risks and benefits to determine if it’s a good idea. 


A co-signer is a person who agrees to pay a borrower’s debt if they default on the loan. Typically, the person co-signing has good credit as well as good credit history. 


Assuming that you can afford to take the risk, co-signing isn’t always a bad idea, in fact, there may be a good reason to do so, such as helping your child get approved for a loan or helping someone new to credit establish a credit history. 


The risks of co-signing are pretty straight-forward. Since co-signing increases your debt-to-income ratio, this could affect your own access to credit, making it harder to get approval for a loan you might need. A loan default could also destroy a relationship since you will become responsible for 100% of the loan if it defaults. 


You can’t just remove yourself as a co-signer after the fact, so before you co-sign, ask the lender what your responsibilities and rights are and how you’ll be notified if payment issues ever arise.