Do I Need to Have a Co-Signer?

“Will Being A Co-Signer On A Loan Damage My Credit?”

When friends or family members come to you for financial assistance, your first instinct may be to see what you can to help.

In some situations, lending a hand is a good thing. It’s a sign of a good friendship or relationship, and you know that they would do the same if the situation were reversed.

But there are some situations when you might be better off saying “Sorry, but no”.

One of these instances is if someone asks you to be a co-signer on a loan.

As many people know, getting a loan can be tough, especially if you have a low credit score.

However, many creditors will forgive this blemish if someone with a better score is willing to co-sign the loan. This gives the creditor confidence that the money will be repaid, whether it comes from the borrower or the co-signer.

Risks In Being A Co-Signer On An Auto Finance Loan

While helping a friend or relative out is often the right thing to do, becoming a co-signer on a loan could actually hurt your credit score if he or she isn’t able to keep up with the payments. Plus, according to Bankrate, if the creditor is inclined to sue, the lawsuit could be directed at the co-signer rather than the borrower.

Often, the lender knows the borrower is already having trouble keeping up with payments or finding the money to pay off the loan. The co-signer on the other hand, has shown more responsibility in his or her finances, and likely has more assets and money.

Therefore, suing the co-signer will likely be more productive than going after the original borrower.

Even if the creditor decides not to sue, your involvement in the loan could still spell bad news. In the lender’s eyes, you aren’t just being a good friend; you are taking on the full responsibility of the loan.

The creditor doesn’t care who comes up with the money, but it is up to you to make sure someone does.

This can be a big responsibility, and it’s one not many people want to have.

Being in charge of getting the money to the lender means your relationship with the person you became a co-signer for could change. You may have to push your friend or relative to make payments on time and budget properly so he or she has enough money to pay them in full.

This can, and has, ruined relationships.

If your friend isn’t making the payments, you may not find out until it’s too late, Credit.com explained.

The missed payments might result in a lawsuit, though not all creditors want to go through the process and may decide to settle the debt instead. While this might not sound bad, and in the moment may feel like a relief, it could actually hurt your credit score.

Additionally, when you file your taxes, you’ll have to claim the amount that was settled as tax forgiveness income, which means you’ll lose money because of it.

When You Need A Co-Signer

For every co-signer, there is a friend or relative looking for help. If you are the person looking for help, your lender may explain the benefits of finding someone to be a co-signer on the loan. Not only will you be able to get the financing you need to buy that car, house or other item, but you’ll also have access to lower interest rates.

But it’s important to keep in mind the risks your friend or family member is taking by becoming a co-signer to your loan.

Since the risks are so high, it’s usually only parents who agree to it, according to Credit.com.

Show your appreciation to the person who agrees to help out by doing everything you can to keep up with the payments. If you don’t, not only will your credit score get even worse, but you are also bringing down the score of the person who signed. This can hurt their ability to get a loan for something they need in the future.


Becoming a co-signer can be a good way to help out someone in need, but be very cautious of the affect it would have on you and your credit score.

And if you’re looking for a co-signer to help you get your credit score raised or better interest rates, be weary of your loans.

Make sure you pay on time, don’t skip payments, and definitely don’t default on the loan or not only will you lose you loan or car, but you’ll most likely lose a friend.

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