Co-signing Means Taking a Risk a Lender Won't

A friend shared with me recently that he had had several people in the past mad at him because he wouldn't co-sign a loan for them. He just couldn't get them to understand that if the bank thought they were a bad risk, then he did too.

Personally, I don't co-sign loans I feel the same way this commenter to my post Don't Co-Sign a Loan Unless You're Ready to Pay It states it:

In the banking industry there is a commonly used synonym for a cosigner: "Idiot with a pen."

And Bankrate gives us this same message in a different form -- courtesy of the FTC's Facts for Consumer Publication titled "Cosigning a Loan":

When you're asked to co-sign, you're being asked to take a risk that a professional lender won't take. If the borrower met the criteria, the lender wouldn't require a co-signer.

Yep. Remember this post if someone asks you to co-sign a loan. Unless you are willing to pay off the debt completely for the people, simply DON'T CO-SIGN A LOAN.

Comments

[Duncan]

I think that this can vary a bit. While someone with almost no credit history may be a poor credit risk to the bank, someone who knows the person well may be better able to assess the risk. The most obvious example could be a parent or a sibling signing for some just entering the working world.

[cory]

I had to get a cosigner for my $8,000 car , but was able to get a $110,000 mortgage on my own. Go figure.

[David]

I co-signed for my fiancee on her car because her credit was less than stellar back in the day. I think there are a few exceptions, but not many that I can think of.

[Matt]

The risk lenders assign to a house is less than they assign to a car - after all it's hard to drive away with your house!

I too have a no cosigning policy - and boy was my wife mad when she couldn't get that new car :)

[GeekMan]

There are only a few instances where co-signing makes sense; offspring with no prior credit record, or helping a well-known person (fiancee, sibling, or other close relation) when they're recovering from bad credit or beginning their credit history. Other than those examples, though, I think you're absolutely right to not co-sign.

[Was I a sucker?]

A friend was in dire need of cash, well, an ex. She bought a car, and wanted me to cosign, I said no. Then somehow she bought the car and needed money for the insurance, she constantly called asking for money saying how desperate she was, I gave her $1100. I wanted to just say NO, but since she needed the car to go to work and make $$$, I say i'll just help someone out. May not get the money back...but...sometimes it's hard if someone really needed the money for something "good".

[daub815]

How do student loans fit into this scenario? Most students do not have the credit or the money to afford college, so should parents cosign student loans?

[TOM]

The bible sums it up. It is called "surity" in the KJV. DON'T.

If you are asked to co-sign for someone then that person is trying to swindle you or they are trying to buy something they cannot afford.