When a family member, loved one, or close friend asks you to
assist them with a credit purchase, you naturally want to
help. The advantages are that you are providing someone with
a great opportunity, and if they make all their payments on time,
you can both benefit from the good credit history.
However, there are greater disadvantages.
The first is the potential that the person you are signing with
won’t be able to make the payments. Whether it’s a good
reason like illness or disability, or a bad reason like
irresponsibility, the effect on your credit is the same. If
the person does not make their payments, the creditor will then
look to the co-signer. If the creditor does not get their
money, everyone’s credit reports will suffer.
Secondly, if you, the co-signer,
decide that you no longer want to be part of the contract, you are
stuck. Once you are part of the contract, the only party that
can let you out is the creditor themselves. No matter what
agreement you may have made with the other co-signer, if your name
is on the contract with the creditor, the creditor can ask you for
payment. This often happens during divorces. If spouses
who co-signed on credit accounts obtain a divorce, even though the
decree may designate one spouse as the responsible party, the
creditor can still look to both. Again, the creditor has the
right to be part of the decision to allow one of the co-signers
Another disadvantage is in the case of a car
loan. Often the co-signer has no possession or use of the
vehicle. They simply co-signed so someone else could drive
the car. If the car breaks down, is destroyed or damaged, the
potential for missed payments increases greatly. If the
co-signer does not live with the person who has the vehicle,
payments may be missed unbeknownst to the co-signer until the
creditor calls for payment.
While co-signing for another person may be admirable, there are
potential disadvantages for co-signer.
Before signing the agreement, sit down with the person seeking your
help and gauge what kind of risk they will be. Just like the
creditor wants to make sure their new customer is a good bet, you
want to make the same determination.