My brother — who drives a Mercedes despite previously filing for bankruptcy — asked me to cosign for another luxury car. He earns more than me. How can I help him without ruining my credit?

That’s why you should use extreme caution before cosigning a loan. If a borrower isn’t reliable and they fall behind on their payments, as a cosigner you’re on the hook financially. If they fail to pay, your credit score could suffer.

But what if a close family member is pressuring you? The situation can become emotional very quickly. For example, let’s say your brother asks you to cosign a loan for a luxury car because his credit is in the dumps due to a previous bankruptcy. But to complicate matters, he already has a luxury car and makes more money than you.

It's a challenging situation, and you need to protect yourself.

Your financial security comes first

When you mix family and money, things have the potential to go wrong. A recent FinanceBuzz survey found that 46% of respondents either borrowed or lent $250 or more to a family member — most commonly, a sibling. However, among those lending out money, only 56% got paid back in full.

Meanwhile, 24% of those who lent money to a family member say it hurt their relationship. And only 15% of those who gave a family member a loan said it was a good idea.

Now, agreeing to cosign a loan isn't the same as lending money directly, but you are making it possible for someone else to borrow money.

The problem is that as a cosigner, that loan shows up on your credit report and becomes your financial responsibility. And if a family member is asking you to cosign a loan because their credit isn't strong enough for them to qualify on their own, they may have a history of falling behind on their debts and getting overextended financially. Cosigning a loan could partly put the fate of your credit score in their hands.

That's why it's critical to have an honest conversation with your family member if you're uncomfortable cosigning a loan. Drawing on the brother scenario described earlier, explain that you're uncomfortable with the risk of getting stuck making loan payments. If you’ve previously been burned by loaning money, you could point out that you're wary of a repeat because things didn’t work out well the last time.