One of the services that might be required of you at one point is to sign a loan. Whether your child is looking for help getting their first credit card, or whether a friend needs a co-signer for a car loan, you may be asked to help. However, before signing a loan, you must consider the pros and cons associated with assuming this responsibility. For borrowers looking to ask for a co-signer, this is one way to help get approved so you can increase your credit.
Understanding co-signatory responsibilities
Before you sign, you should understand what that entails. When you have signed a loan together, you promise to pay the loan if the borrower fails to pay. The main benefit to signing is that you can help someone else get the credit he or she needs. Co-signing for your child can help him or her start down the path to good credit. Your loan signature gives someone else a chance.
However, understand that you will be held responsible if the borrower does not pay. When a borrower misses a payment, the creditor can come for you because you have agreed that you are responsible for the loan in some way. For many people, this aspect of co-signing is enough of a drawback to avoid it altogether, even if it will help someone.
Your confidence level with the loan beneficiary
You have to ask yourself whether or not you trust the bailer. Do you believe he or she will pay on time?
If you are helping a friend buy a car so that he or she can go to work, it may seem like a noble cause. However, if this friend has shown a tendency to waive their obligations, you may need to repay the loan. While it may seem cold-hearted to evaluate your child, parent, sister, or friend for reliability, it may be necessary if you do not want to make an effort to pay someone’s debt.
Consider whether co-signing on a loan can adversely affect the relationship
In addition, consideration should be given to the impact that signing a loan could have on your relationship with the borrower. Will you be constantly pushing the borrower to make sure that he or she fulfills the obligation? What happens if the borrower borrows?
When it’s your own child or parent, it might be easier to go through an obligation to pick up an unpaid loan. However, being a non-paying friend or relative can keep you accountable for irreparable injury.
One of the biggest drawbacks to co-signing a loan may be the effect it has on a nurturing relationship. If you are worried about this, it might be better to think of other ways to help someone in the relationship.