Skip to Content
Group of people discussing cosigning a loan

Having a friend or family member ask you to cosign a loan can trigger a number of questions and concerns. Because someone you care about needs help, it can be tempting to agree to be a cosigner, without thinking through all the possible things that could happen as a result. Here are some things you should know about what it means to be a cosigner, and the pros and cons of cosigning a loan.

What it Means

In the simplest terms, being a cosigner on a loan means you are responsible for paying it back if the other party defaults on the loan for any reason. It’s a big decision and one that you should take seriously.

Pros of Cosigning a Loan

  • Helping someone you care about — Helping someone get the credit they need can make a big difference in their lives and have a positive effect on their credit, if  they pay back the loan.
  • Greater diversity of accounts — Although one of the lesser factors, having a variety of different types of credit accounts is one of the factors that determines your credit score. So if you’re cosigning for a type of loan you don’t currently have, it might be a good thing.

Cons of Cosigning a Loan

  • Increased responsibility — Once again, if you cosign for a loan, you are responsible for paying if the other party can’t. Could you handle the increased financial responsibility?
  • Potentially strained relationship — Many personal relationships have been damaged or ended because of financial strain. Ask yourself how much you trust the person who is asking for help and how you will feel if you end being responsible for their loan.
  • Potentially lower credit score — Depending on the current state of your credit, specifically your debt-to-income ratio, taking on additional debt may cause your credit score to drop.

Bottom Line

Ultimately, the decision whether or not to cosign a loan is yours and yours alone. If you decide to say yes, be prepared for all it entails. If you choose to say no, consider offering to help in another way, such as offering free babysitting to ease the cost of child care, or providing leads for a new, higher-paying job.

Related Posts

What You Need to Know About Retail Credit Cards

It happens all the time. You’re buying something at a store and as you’re getting ready to pay, the cashier asks if you’d like to open the store’s credit card to save 10 (or 15 or 20) percent on your purchase — then they mention that it takes just a few seconds to apply, right […]

Read More

What You Need to Know About Identity Theft

Identity theft is an unfortunate fact of life in the digital age. You must stay vigilant and take care to protect your personal and financial information from those who wish to misuse it for their benefit. Read on to learn how to learn what you need to know about identity theft.      Signs of […]

Read More

Credit Cards: Advantages and Disadvantages for the Consumer

What are Credit Cards? A Brief History of Credit Cards Explosive Growth of Credit Cards Potential Dangers and Risks with Credit Cards Good Financial Management Practices with Credit Cards Some Suggestions for Good Credit Card Management   What are Credit Cards? A form of money (instant spending power) that provides both the capacity to buy […]

Read More
Font Resize

Call 866-528-0588

Or schedule a call now
Please complete the required fields to continue.
Now Later