What to know about co-signing a loan.

October 27, 2015

erin_doan_agency 031514Good Neighbor Tips. A blog by Erin Doan, Erin Doan State Farm Insurance, Scottville;www.erindoan.com.

Your friend or family member wants to take out a loan — but they don’t qualify. They could, however, if someone co-signs, so they ask you. Before you jump in to help, understand how the decision potentially impacts your credit. Consider the following carefully.

What Happens When You Co-sign

There are potential risks when co-signing a loan.

  • You are 100% responsible for the debt. When you co-sign, you agree to pay the loan back in full — plus any late fees or collection costs — if the primary borrower defaults or misses just one payment. If you can’t pay, the lender could sue you or garnish your wages.
  • It can lower your credit score. The primary borrower’s late or missed payments can prevent you from qualifying for personal loans or other lines of credit in the future.

Before Co-signing: Factors to Consider

Think about the following before agreeing to co-sign a loan.

  • Is the borrower able to make payments on time? If the primary borrower doesn’t have a steady source of income, making on-time payments may become an issue.
  • How can you protect your credit? Ask the borrower to make any missed payments within 30 days to ensure your credit score (theirs, too) doesn’t take a hit.

Your Investment Is Key

If you’re comfortable co-signing a loan, treat the debt like it’s your own.

  • Set a timeline. Agree on a specific date to get your name off the account. To do this, the primary borrower must refinance the loan or close the credit card.
  • Monitor the account. Review online statements to make sure the primary borrower is regularly making payments.

– See more here.