Why You Should Never Cosign A Loan
Oh, the noble allure of cosigning a loan. You, the financial superhero, swooping down to sign your name on that dotted line, making dreams come true for your loved ones.
As tempting as it is to don the cape of creditworthiness, I’m here to urge you to hang it up and step away from the pen. Because you know what they say about good intentions, don’t you? They make excellent paving material for certain warm, unpleasant destinations.
Without further ado, let’s delve into the reasons why you should treat cosigning a loan like that dodgy potato salad at a summer BBQ – just don’t touch it.
8 reasons why you shouldn’t cosign a loan
1. You’re on the hook, no two ways about it
Remember that time when you got your friend’s sofa stuck in the stairwell while helping them move, and you had to pay for the damages? (Oh, was that just me?)
Cosigning a loan is like that, but worse. If your buddy can’t make the payments, you’re on the hook, and this sofa isn’t just stuck – it’s superglued to your credit score.
2. Goodbye to borrowing power
Cosigning a loan isn’t just about putting your superhero cape on for someone else; it’s about giving up some of your own superpowers. That loan you cosigned? It’s now part of your debt-to-income ratio. Want to apply for your own loan or mortgage? Your lending ability just got shrunk faster than a cheap t-shirt in a hot wash.
3. Welcome to the land of no control
Here’s the kicker: you have zero control over how the borrower handles the loan. You may be accountable, but you’re not in the driver’s seat. It’s like letting someone else steer your car while you’re duct-taped to the roof. Not ideal, right?
4. Your credit score is on the line
Your credit score is your financial reputation. It’s the number that whispers sweet nothings to lenders about your reliability. Cosign a loan, and your score could plummet to a number so low it’ll take years to rebuild.
5. Relationships can crumble
Money and relationships mix about as well as oil and water. Adding the pressure of a cosigned loan can lead to more tension than a family game of Monopoly. Do you really want to risk Thanksgiving turning into a debt discussion?
6. Legal repercussions are real
If the borrower defaults and you can’t cover it, you’re not just looking at a credit score headache. You could end up in court faster than you can say “I didn’t sign up for this!” Spoiler: You did.
7. It might never end
Loans can be like the unwelcome house guest that never leaves. If the borrower can’t refinance, you’re on the hook until the loan is paid off, which could be an indefinite amount of time. How do you even begin to make future plans with someone else’s debt hanging around your neck, and no end in sight?
8. The borrower may never become self-sufficient, and might continue to rely on you
When someone asks you to cosign a loan, it’s usually because they don’t have the credit score or income necessary to qualify for the loan on their own. If that person isn’t able to become self-sufficient and improve their financial situation, they may need your help again in the future.
Make no mistake about it, this will create an ongoing cycle of dependence, which really doesn’t help anyone, not least of all the borrower.
Final thought
To sum it up, cosigning a loan is a whole heap of risk with very little reward, kind of like eating a gas station sushi. It might seem like a good idea, a quick fix in a pinch, but the potential fallout could make you wish you’d chosen differently.
It’s best to leave the financial superhero capes to the professionals and support your loved ones in other ways. After all, sometimes the most heroic thing you can do is say no.