Should I co-sign a loan? Article explains why it may be a bad idea

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mdgspencer said:
see https://www.forbes.com/sites/financialfinesse/2017/05/07/what-to-know-before-cosigning-a-loan/#143a05586119

Be careful–you could be stuck with paying for the loan yourself–which often happens, this article warns.
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Don’t ever co-sign for any loan that you could not afford to pay back without ruining yourself financially. A family friend of ours lost $5 million over such a venture. Basically wiped him out, he had to start all over (he was a doctor with a very lucrative practice).
 
No! Don’t! I’ve been guilted into co-signing and had to pay off both loans in order to save my record. If I’d not done so, since my name was on the dotted line, court judgments against me would have occurred, and I would’ve eventually had to pay them, anyhow, with the added burden of rebuilding my credit record.

The bottom line is that there’s a reason if someone can’t get credit through an established company. No matter how much you love the person, or feel as though you “owe” them, don’t co-sign.
 
mdgspencer said:
Be careful–you could be stuck with paying for the loan yourself–which often happens, this article warns.
Click to expand...
That is by default what co-signing means. I will pay this if the other person does not.
 
You can also impact your own credit score and borrowing capacity, as that co-signed loan is also included in your debt utilization.
 
I mean this is just common sense. That’s what co sign means. Not exactly breaking news.
 
The Bible (specifically, the OT) contains multiple warnings against being surety for someone else’s debt. Bad idea all the way around.

D
 
It’s a bad idea. I will give my experience cosigning a loan. It was a joint business deal and my partner, who was needed in the deal for his experience and to run much if the business did not have the money. It was a really good deal and we had a good business case. He went to the bank for a loan and once the bank (actually happened at three banks) found out he had a partner with more assets, required me to co-sign.
One banker even admitted the business case was good enough that if my partner was doing it himself, they would have financed it without the co-sign, but they were required to get the security if it was available. After much arguing, I ran the numbers in the likely worst case scenario and figured I would not lose money.
Fast forward 18 months, major health issue with my partner, we were forced to exit the deal early. And I had to pay off much of his loan. I did not lose money overall, but it are up all of my profit.

Lesson learned: don’t co-sign, and only have a business partner when you absolutely need one (which I did in that case).
 
I knew a woman whose daughter and son-in-law ran into severe financial hardship. They were in danger of losing their house. She did what most any loving mother would do and co-signed for a refi on the mortgage. And then she realized the reason they were in such debt was because the son-in-law was a laggard and a spendthrift and she herself got sucked into their ruination.

I’m not sure whatever happened to her. It’s been 15 years since I’ve seen her.
 
speaking as a practicing bankruptcy attorney . . .

when asked to do this, ASSUME the the person will default and that you will be required to pay.

Is this something that you are capable of doing, or will you be coming to see me in a professional capacity?

Next, is this something you are willing to do for this person?

The bank is an expert; you are not. When they require a cosigner, it is because by objective analysis, this person is a very high risk of not paying.

There are situations in which you see why this person has changed, and will stick your head on the chopping block for them–but realize, this is what you are doing.

And what will happen to your relation with this person?

Another way to look at it: is this an amount that you are willing to give this person to help him put his life back together? If so, sit down with him, and kick in the extra to send him to a Dave Ramsey or similar course, and do it. If you don’t have to pay, wonderful–but arrange your finances around paying.

hawk
 
I have for my kids as they were getting established. I also knew I could be on the hook. It worked well in those cases. I would not do it for anyone else.
 
if you can afford it if it goes bad, and if you reasonably expect that it will actually get paid by the borrower, and if going bad won’t harm the relationship, then, yes, by all means.

But if any of those are not the case, it’s setting up for long-term relationship problems.

And if declining to climb on the hook will hurt the relationship, than that needs to be dealt with befor dealing with such a loan . . .

I’ve seen the wreckage, and handled the bankruptcies for those whose lives were shattered by the default of the person they were trying to help . . .
 
No, never do that. Like others rightly said if the person defaults, you are responsible for paying the loan.
 
Co-signing a loan is the same as signing a loan for yourself. You take full responsibility for paying it back.
 
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