Saying no to cosigning.

Thinking Of Cosigning?

Have you been asked to cosign a loan? It might seem like a simple thing but becoming a cosigner has some serious responsibilities. Before you commit to putting your name on another persons loan, be sure to think about all of the consequences. It might not be as simple of a thing as you think.

To Cosign Or Not To Cosign

It takes just a minute to become a cosigner but the consequences can be far reaching. Take a look at what could happen if you sign on that dotted line.

1) You become responsible for the loan.

When you cosign for a loan, you have the same responsibility as the primary borrower. This means that if they default on the loan, the bank has the right to come after you for the money.

Before cosigning, take a look at the debt and think long and hard about it. If the primary borrower defaulted, could you afford to make the payments on the loan? If not, you could end up with a defaulted loan on your credit. That is something that could damage your score for 7 years.

Even worse, the borrower could sue you and win a judgement against you. That would allow them to seize property, assets or even garnish your wages. All because you wanted to do someone a favor and cosign.

2) There Isn’t Much Reward

Another big problem with cosigning is that there is just really not much in it for you. You get a thank you, but that is about it.

Compare this minimal reward to the cost and you see that the transaction is very one sided. You face the possibility of being saddled with a debt and all that you get out of it is the initial thanks.

3) You Have No Control

If you cosign the loan, you are giving the borrower use of your credit and you have no control over the repayment of the loan.You will not even be privy to see the current status of the loan and will have no way of keeping track if the loan is current or not.

So, essentially, you get to potentially be on the hook for the entire loan but have no knowledge about its status.

4) You Could Burn A Relationship

Money comes with a lot of emotions. If the borrower that you are cosigning for defaults and ruins your credit, how is that going to make you feel? Would it ruin your relationship or would you be able to move on?

On the other side, what if the borrower knows that they are about to default. If they can no longer make that five hundred dollar payment, for example, is the guilt going to make them avoid you? Probably.

5) You Can’t Get Out Of It

Once you cosign a loan, you will be unable to remove yourself from it. You are a cosigner until that debt has been paid off.

What would happen if the relationship were to sour or someones financial circumstances change. You would be unable to get out of the commitment.

Getting Out Of Cosigning

Now that you know how bad of an idea cosigning is, how can you get out of it. It can be very awkward saying no to a request and doing so could cause hurt feelings. Here are some excuses that you can use to get out of it.

  1. Your About To Use Your Credit
    When someone makes a request for you to cosign, tell them that you are about to make a purchase or refinance a loan. Cosigning could therefore lower your credit score and you can not afford to take the hit.
  2. Your Credit Would Not Help
    If someone is asking you to cosign, they understand poor credit. Simply say that yours is no good and that it would not help them. Even if you have a high score, who is to know.
  3. Do They Know What Cosigning Means
    Many people do not understand what cosigning really is. Explain to them that cosigning means being responsible for the debt. If they default on a 3500 dollar loan, that is now your 3500 dollar debt After they learn what is really involved, see if they still want you to sign on the line.
  4. You Need To Consult Your Spouse
    If you are married, this is an excellent way to put off a cosign request. Tell the borrower that you will need to talk to your partner first. You can use this method to put off the person for weeks or until they find someone else to sign for them.

Wrapping Up

So there you have it. 5 reasons not to cosign and a few ways to get out of it.

If you decide to cosign, do so only with the assumption that there is a very good chance you will be on the hook for the money. If someone needs a cosigner, it is because a bank feels they are a bad risk. Why should you think any different.

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