Let’s say you’re 36 years old with dreams of homeownership but saddled with a car that needs regular maintenance. You’re also dealing with $30,000 of debt and a mediocre credit score. A childhood friend calls with a desperate plea: “Can you cosign a personal loan for me?”
The friendship runs deep, but so does your debt. What do you do when their emergency collides with your own fragile situation?
For someone with significant debt and less-than-stellar credit, this decision could lead to financial disaster, becoming a weight that drags you deeper into the hole. Let’s break down what cosigning really means and why you may want to avoid it.
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.
Cosigning 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 limit.
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.
