Home > Managing Debt > Should You Co-Sign That Loan?

Comments 0 Comments

During this festive season, we often spend more time than usual with our family — for Thanksgiving and Christmas get-togethers. The early, chilly nights force us to spend more time indoors, hanging out with brothers and sisters and aunts and uncles and nieces and nephews.

Family bonds are strong. Most of us would do anything for family. So during family time this season, you might have a sibling pull you aside and quietly but politely ask you if you would co-sign a loan for them.

It puts you in an awkward position. Should you take on the loan? You might not want to co-sign anything but they are family, and their circumstances might be dire, so maybe you feel like you have no choice.

If you are thinking about co-signing for a loan, here are the credit implications you need to be aware of:

  • Co-signing a loan is just like getting a loan. Don’t make the mistake of thinking that it is some sort of secondary action that has no consequences for you.
  • The lending company will pull your credit report. Every time your credit report is pulled by a lender, your score goes down slightly.
  • Co-signing a loan will impact your credit score if your relative pays late or is unable to pay at all.
  • As the co-signer, you will be equally responsible for the amount owed. Therefore, if your relative doesn’t pay it back, you will need to do so.

Co-signing is a serious situation and it’s no different than getting a loan application for yourself. So take it seriously and think twice about co-signing even if it’s a family member asking.

If you choose to co-sign a loan, here is what you should do:

  • Do not co-sign for any amount that you cannot afford to fully pay yourself (if your relative is unable to pay it).
  • Ask that the invoices be sent directly to you and that your relative pays you and you will forward the money to the lender. That way, you will always be aware of payment due dates and you can ensure for yourself that no payment is ever late.
  • Keep very careful records of all payments received from your relative and paid to the lender. This will protect you if your relative disagrees with how much they owe, and it will protect you if your credit report is hit with a late payment notice in error.

There’s nothing wrong with co-signing a loan but make sure that you are aware of the risks and protect yourself as much as possible. Remember that even families are torn apart by money issues, and some of those money issues stem from co-signing.

Image: Vee-vee, via Flickr

Comments on articles and responses to those comments are not provided or commissioned by a bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by a bank advertiser. It is not a bank advertiser's responsibility to ensure all posts and/or questions are answered.

Please note that our comments are moderated, so it may take a little time before you see them on the page. Thanks for your patience.

Credit.com receives compensation for the financial products and services advertised on this site if our users apply for and sign up for any of them.

Hello, Reader!

Thanks for checking out Credit.com. We hope you find the site and the journalism we produce useful. We wanted to take some time to tell you a bit about ourselves.

Our People

The Credit.com editorial team is staffed by a team of editors and reporters, each with many years of financial reporting experience. We’ve worked for places like the New York Times, American Banker, Frontline, TheStreet.com, Business Insider, ABC News, NBC News, CNBC and many others. We also employ a few freelancers and more than 50 contributors (these are typically subject matter experts from the worlds of finance, academia, politics, business and elsewhere).

Our Reporting

We take great pains to ensure that the articles, video and graphics you see on Credit.com are thoroughly reported and fact-checked. Each story is read by two separate editors, and we adhere to the highest editorial standards. We’re not perfect, however, and if you see something that you think is wrong, please email us at editorial team [at] credit [dot] com,

The Credit.com editorial team is committed to providing our readers and viewers with sound, well-reported and understandable information designed to inform and empower. We won’t tell you what to do. We will, however, do our best to explain the consequences of various actions, thereby arming you with the information you need to make decisions that are in your best interests. We also write about things relating to money and finance we think are interesting and want to share.

In addition to appearing on Credit.com, our articles are syndicated to dozens of other news sites. We have more than 100 partners, including MSN, ABC News, CBS News, Yahoo, Marketwatch, Scripps, Money Magazine and many others. This network operates similarly to the Associated Press or Reuters, except we focus almost exclusively on issues relating to personal finance. These are not advertorial or paid placements, rather we provide these articles to our partners in most cases for free. These relationships create more awareness of Credit.com in general and they result in more traffic to us as well.

Our Business Model

Credit.com’s journalism is largely supported by an e-commerce business model. Rather than rely on revenue from display ad impressions, Credit.com maintains a financial marketplace separate from its editorial pages. When someone navigates to those pages, and applies for a credit card, for example, Credit.com will get paid what is essentially a finder’s fee if that person ends up getting the card. That doesn’t mean, however, that our editorial decisions are informed by the products available in our marketplace. The editorial team chooses what to write about and how to write about it independently of the decisions and priorities of the business side of the company. In fact, we maintain a strict and important firewall between the editorial and business departments. Our mission as journalists is to serve the reader, not the advertiser. In that sense, we are no different from any other news organization that is supported by ad revenue.

Visitors to Credit.com are also able to register for a free Credit.com account, which gives them access to a tool called The Credit Report Card. This tool provides users with two free credit scores and a breakdown of the information in their Experian credit report, updated twice monthly. Again, this tool is entirely free, and we mention that frequently in our articles, because we think that it’s a good thing for users to have access to data like this. Separate from its educational value, there is also a business angle to the Credit Report Card. Registered users can be matched with products and services for which they are most likely to qualify. In other words, if you register and you find that your credit is less than stellar, Credit.com won’t recommend a high-end platinum credit card that requires an excellent credit score You’d likely get rejected, and that’s no good for you or Credit.com. You’d be no closer to getting a product you need, there’d be a wasted inquiry on your credit report, and Credit.com wouldn’t get paid. These are essentially what are commonly referred to as "targeted ads" in the world of the Internet. Despite all of this, however, even if you never apply for any product, the Credit Report Card will remain free, and none of this will impact how the editorial team reports on credit and credit scores.

Your Stories

Lastly, much of what we do is informed by our own experiences as well as the experiences of our readers. We want to tell your stories if you’re interested in sharing them. Please email us at story ideas [at] credit [dot] com with ideas or visit us on Facebook or Twitter.

Thanks for stopping by.

- The Credit.com Editorial Team