What it means to cosign
Cosigning isn’t just doing your friend a favor — it’s putting your own financial health on the line. When you cosign, you become just as responsible for the loan as the primary borrower. If your friend misses payments or defaults entirely, the lender will come after you for the money.
In addition, the loan will appear on your credit report, impacting your debt-to-income ratio and potentially lowering your credit score, especially if payments are missed or late. Essentially, cosigning is the same as assuming the loan yourself — with none of the direct benefits.
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Explore better ratesCosigning risks while in debt
If you’re already $30,000 in debt and your credit is average to poor, cosigning a loan can be like playing with fire. Here’s why:
Increased liability: When you’re working through your own debt, adding someone else’s financial burden can be overwhelming. Should your friend fail to make payments, you’ll be responsible for covering them, which could stretch your finances beyond their limits.
Credit score impact: Cosigning could further damage your score if your friend misses a payment. Any missed payments will show up on your credit report, making it even harder to improve your financial standing.
Effect on creditworthiness: Lenders scrutinize your credit history when assessing any future loans or credit applications. Cosigning could make you appear risky and impact your ability to apply for more credit.
The potential benefits of cosigning
Despite the risks, cosigning isn’t all bad — if done under the right circumstances.
You may strengthen your relationship by helping a trusted friend during a time of need. If they consistently make payments on time, it can help them build on their credit history while solidifying your own, and both credit scores benefit.
Having another account in good standing on your credit report may offer a slight boost – if all goes well.
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Get StartedAlternatives to cosigning
If cosigning feels too risky, consider other ways to help your friend without putting your financial health on the line.
Your friend may be able to qualify for a smaller loan on their own or find lenders who specialize in high-risk borrowers. Instead of cosigning, consider becoming a co-borrower. This means you’ll share responsibility for the loan but will have more control over payments and loan terms.
Also look into peer-to-peer lending platforms or credit unions, which may offer more flexible loan terms for someone with limited credit history.
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Meet Your Retirement Goals Effortlessly
The road to retirement may seem long, but with Advisor, you can find a trusted partner to guide you every step of the way
Advisor matches you with vetted financial advisors that offer personalized advice to help you to make the right choices, invest wisely, and secure the retirement you've always dreamed of. Start planning early, and get your retirement mapped out today.
