When you co-sign a loan, youpromise to pay off somebody else’s debt if the borrower stops making payments for any reason. This is a generous act, as it can help a friend or family member get approved for a loan that they otherwise wouldn鈥檛 qualify for. But it鈥檚 also risky to guarantee a loan for somebody else.
People also ask
What is a co-signer on a loan?
When you co-sign a loan, you promise to pay off the loan in the event the primary borrower is unable to pay off the loan. A co-signer becomes necessary when the person applying for the loan doesn’t have sufficient credit history, reliability or income to get the loan on his own.
Should you say no to cosigning on a loan?
The risks of cosigning outweigh the benefits, no matter how honorable your intentions. Saying no to someone you鈥檙e close with may put a strain on your relationship for a while, but that鈥檚 nothing compared to what massive debt and ruined credit history will do to a relationship. Take a look at a few instances where you should say no to cosigning.
Does co-signing a loan affect your credit score?
Consider what co-signing a loan will do to your credit score; this loan will appear on your credit report. If you plan to take out a loan yourself in the near future, you may not want to co-sign now as it will increase your apparent debt load and could potentially hurt your ability to be approved.
Do I need a cosigner to build credit?
While there are many ways to build credit, when you need a loan and you鈥檝e got limited credit, a cosigner is your best bet. Typically, cosigners are used by teens or young adults who are taking out college loans or signing a lease on their first apartment.