Skip to Content

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.

woman working on balancing budget

Struggling with Credit Card Debt?

A debt management plan can help:
  • Consolidate monthly payments
  • Lower interest rates
  • Eliminate collection calls

Related Posts

The High Stakes of High-Cost Lending

Check-cashing and title loan companies continue to be a fast-growing area of the financial services industry. These lenders often appeal to individuals and families whose monthly budget comes up short and have low credit ratings, which leaves them few choices when it comes to borrowing cash to make ends meet. Payday Loans Payday lenders typically […]

Read More

Young Consumers and Credit Cards: How to Maintain Manageable Interest Rates

When we turn 18, the world suddenly changes. We’re officially “adults.” We can vote. We often move away from home. And, we can get credit. For most of us, credit cards play a daily role in our adult lives – whether we use them or not. The temptation to “charge it” always lingers. We must […]

Read More

Do You Need to Know Your Credit Score?

Knowing your credit score is just one part of being an informed consumer. But even if you know that magical three-digit number, do you know what it actually means? Here’s a quick overview. What is a credit score? A credit score is a three-digit number that reflects the information in your credit report. Most people […]

Read More

Call 866-528-0588

Or schedule a call now
Please complete the required fields to continue.
Now Later
By requesting a review you are agreeing to communications from Take Charge America via email, phone and SMS messaging. You can opt out at any time.