Recently, the topic of cosigning a loan came up in a conversation I was having with a friend. Someone I know of cosigned a loan for another person, and now the original borrower isn’t paying any of the monthly payments. They are doing this on purpose – to get back at the person who cosigned a loan for them because of a recent falling out.
The above may sound crazy, but I have heard many stories where a person cosigned a loan and it went badly. Being a cosigner can have many consequences.
I did some research to see if there were any others who had shared crazy cosigning stories. I came across Learnvest’s article The Mistake That Plunged My Credit Score 200 Points. If you don’t believe me after reading today’s post that cosigning a loan, in general, is a bad idea, I recommend you read that article plus all of the comments on it.
Here’s a little snippet from that article:
It wasn’t until the fall of 2009, when I was thinking about getting satellite television, that I checked my credit report and discovered $10,000 in past due payments. My friend had missed not one, not two, but three mortgage payments!
Another interesting post is one I found on Reddit titled Co-Signing on a loan mistake.
As you can see, there are many who have an unfortunate story to share.
Here’s what you need to know about cosigning a loan.
What is a cosigner?
A cosigner is someone who agrees to be on a loan with another person so that they are more likely to be approved. For example, if your friend can only get a car with a cosigner (either due to them having a low credit score, not making enough money, etc.), then they may ask you to cosign so they can get approved.
However, a cosigner is agreeing to pay off the debt if the original borrower is unable to pay it in the future. So, even if the original borrower doesn’t pay a penny, the cosigner would have to make all of the payments or risk being sued, credit report damage, and more.
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Cosigning a loan may prevent you from being approved for future loans.
If you are thinking about buying a house, car, or something else soon that will need to be financed, you should think long and hard before you decide to be a cosigner on someone else’s loan.
This is for multiple reasons.
One, if the person doesn’t pay the monthly bills on time then you may be rejected for a loan in the future. Missed payments can damage your credit score and your credit report.
Two, your debt-to-income ratio will increase. So, even if your friend/family member pays every single bill on time, your debt to income ratio will increase and this may prevent a lender from approving your loan because they will think you have too much debt on your plate.
Being a cosigner isn’t something you can easily get rid of.
There’s not much you can do to remove yourself from a loan that you cosigned on. If the person isn’t making payments, you are stuck with it for the most part.
The loan would have to be refinanced to get your name off of it in most cases and there are many horror stories out there where the original borrower refused to refinance because then they wouldn’t be able to force the cosigner to continue to pay the monthly bill.
Plus, there are instances in which refinancing is impossible because of values tanking, the economy changing, and so on. So, while the original borrower may want to get you off the loan and refinance, it’s entirely up to the lender.
Cosigning a loan can ruin relationships.
Many cosigning relationships go sour. I have heard of many stories where someone cosigned a loan for someone else and then didn’t talk to them for decades because of a falling out of some sort.
I have always been a firm believer that money and relationships do not mix well. If you are going to cosign or lend money to someone then you should consider it a gift because there is a chance that you will never see that money again.
Cosigning a loan is up to you.
Everyone always feels like all of the cosigning horror stories out there would never happen to them. However, isn’t that how you think all cosigners felt at one time as well?
It’s up to each individual person to decide if they will cosign. However, I want you to remember that if you cosign then you should make sure that you can afford to make the monthly payment.
You never know – one day you may be making them. The original borrower may be a great person, but they may lose their job, have an unexpected expense come up, or something else that prevents them from paying their bills.
Cosigning a loan may not always be bad. However, I believe it’s better to realize what the consequences may be. It’s always better to be prepared!
Would you ever try cosigning a loan and being a cosigner? Why or why not?
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I have never given enough thought about being a cosigner. That’s why I have never rejected someone’s request. Now, I think I am gonna give it a second thought. Thanks Michelle.
So, are you currently a cosigner for someone?
I turned down one request to cosign — even though she was a friend.
When another much-loved person asked the same thing, regarding a student loan, we didn’t hesitate. After all, she’d make the payments regularly…right?
After a missed payment here and there, our credit score dropped more than 100 points — and we started making regular payments on the loan.
More than two (and I think three) years later, we are STILL making payments on the loan. Even though we have encouraged, demanded and finally threatened. It doesn’t matter. If we want to keep our score improving, until we know for certain that the loan’s paid off, we need to keep making payments.
Sigh.
This is EXACTLY why you should not cosign. Thank you so much for sharing your story – hopefully others will see this!
I consigned a car loan for my son who has recently gotten out of the army. His prospects of getting a job were good but then he moved out of state and has been having challenges finding a decent job. Needless to say the car loan has fallen past due. I love my son but I would definitely think twice or more before I do this again.
Thank you for sharing your story. I hope things get better Luis.
I learned the hard way.I had a “bad friend” before, he asked me to co-sign his motorcycle loan. So without hesitation, I agreed with his favor, but after 3 months he was gone with the motorcycle!
OH NO! Is he paying for it?
Certain people need a co-signer for a reason. It’s a horrible decision to sign for anyone. It’s horrible to put your friend on your cellphone plan if they don’t qualify for their own.
The only time I think it’s acceptable to co-sign is if you’re a parent co-signing for your child, and you have the full expectation that you will probably be paying for whatever your child decides to buy. With that said, if your kid can’t get a loan on their own, they probably don’t need to be buying it anyways.
I agree Jackie!
I would only cosign for a family member – and only if I was prepared to pay the loan off myself if something happened. I would never cosign for a friend!
Yes, you would have to be fully prepared to pay for it. Most of the bad stories I hear about are about family members not paying.
All I had to read about was the title. I am so passionate about NOT cosigning and advising other people NOT to cosign. I really don’t think it’s a good idea.
I agree!
I don’t know if I could ever cosign a loan and that horror story you shared is exactly why. There are other alternatives I might consider, but not tying my credit to someone else.
I agree!
I just had a falling out with a friend I grew up with. We were friends since before I can remember. He was the best man at my wedding and I was the best man at his. Then one day over seemingly nothing he stopped talking to me. I would have done anything for him… even probably would have co signed a loan. I am thankful I was never asked to, because I would probably have been stuck with it today. Don’t co sign unless you are ready to pay it back in full.
-Andrew
Yes, definitely!
I have seen that many parents become cosigners for their “kids” who are in their 20’s. It’s hard to tell whether this is a good or a bad idea, it mostly depends on your financial situation as well. I don’t think I want to become a cosigned to someone, probably if anyone at all, s/he has to be a very close family member and I have to be sure s/he is a responsible person. Definitely very informative post!
Thanks Reelika!
I understand cosigning with a family member, especially a young adult child who hasn’t established credit yet. My dad did it for me on my first car loan, and I’m grateful for that fact. Outside of that circumstance, though, I can’t see doing it. There’s just so much risk involved.
Yes, there’s a lot of risk!
I don’t think I would ever cosign for someone, for just the reasons you outlined. Scary stuff!
Yes, definitely scary!
Wow, that’s crazy that someone would cause additional harm to their own credit in order to take down someone else’s. Other than mortgages and student loan’s, I’m against loans in general so I can’t envision any circumstance where I’d cosign a loan. I’m certainly not going to cosign on a mortgage for property that I don’t have a stake in and I’m hopeful that my kids will be able to avoid student loans when it comes time for their college. Yikes!
I know, it’s a pretty crazy story!
I would cosign for an apartment or car for either of my sisters (although only one is still young enough and new enough to credit to ever need that), but they are responsible women who would pay their bills no matter how they felt about me.
Other than that, I’d only ever cosign for a loan if the person really needed the loan for some reason and paid me the cash up front that would be making all the payments. Like if they were trying to build their credit and already had the cash on hand. I would take the money, make the payments automatically, and they could go on their merry way with better credit. That’s pretty much it.
Oh, and if I have children and they need a cosigner when they are first making it on their own, I’d do it if they were responsible people with the income to cover the apartment or car or whatever, which I really hope they’d be, but I’m a realist and would say no if I really thought I’d get stuck with payments.
It’s a tough decision. Mixing money and relationships can be hard.
Being a cosigner is SO dangerous. The only loans I’ve ever cosigned have been with my husband (AFTER we were married), although I don’t think that counts. 🙂 I learned this lesson early from my dad. As soon as we were old enough he had us establishing credit and didn’t even cosign our loans for school or our first car. He wanted us to be able to stand on our own two legs.
Yes, my father did the same thing. It helped me so much!