Think carefully before cosigning for a loan

Cosigning a loan for a friend or family member can be a feel-good experience. On the other hand, adding your name to someone else’s financial obligation is a huge responsibility that can be devastating to your credit. So, is cosigning a loan the right thing to do? Only you can make that determination.

Whether it’s for a vehicle loan, mortgage, student loan or apartment lease, adding your signature to someone else’s promise to pay is nothing short of your commitment to take responsibility for that borrower’s debt if that borrower fails to live up to his or her obligation. The commitment is serious business and can affect many aspects of your financial future. Here’s why.

First, there are many reasons why a borrower might need a cosigner. Perhaps your child has no credit history and needs a “boost” to get their financial life underway. In that case, the benefits of cosigning may outweigh the financial risks associated with putting your good credit on the line. Alternatively, a person may need a cosigner because they don’t have sufficient credit to qualify on their own. Will adding your commitment to stand behind them financially change their bill-paying habits? In many cases, the answer is no.