What is the downside of co-signing a loan?
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My son needs a co-signer for a car loan. I’m inclined to sign, but I’m not sure I fully understand all the implications of co-signing a loan.
You are fully liable when you co-sign
When you co-sign, you are equally liable for the loan. The loan will appear on both credit reports and affects your credit score (either good or bad, depending on whether it is paid back on time or not).
The loan is also included in your total debt to income ratio. It does not matter that the other person is making all payments. This may keep you from qualifying a loan when you’ll need one.
In case that the person you co-signed for defaulted on the loan, the creditors will come after you for payments.
As a general rule I advise people not to co-sign for someone else, unless it’s for a wife or children. If your kids need you to co-sign because their credit report is too thin – fine. But if they need a co-signer because of bad credit – do not co-sign. They won’t hesitate to screw your credit if they’ve already screw theirs.
Never co-sign for ANYONE other than your wife or kids.
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