If you have good credit and you have a family member, friend or loved one with less-than-ideal or no credit, becoming their co-signer on a loan could help them qualify for a loan they might not otherwise be able to get or qualify for a loan with more competitive terms.
It’s important to consider what can happen when you become a co-signer on somebody else’s loan.
Here are some implications of being a co-signer on a loan:
- If your friend doesn't pay, you’re responsible for making sure the loan is paid unless your friend assumes the loan without you as a co-signer, closes the loan, or qualifies for a refinance without you as a co-signer.
- The loan appears on your credit reports, along with any late payments, defaults and missed payments sent to collections.
- Taking on any kind of additional debt typically increases your debt-to-income ratio.
Read more information about: Co-signing a loan: Pros and cons