Imagine that your son has gone off to college, comes home one weekend and says “Dad, I found this truck I want to purchase, but the Credit Union says I need a co-signer. Will you co-sign on it for me?”
This is a common scenario for students to ask their parents to co-sign on a loan. Of course, most of us would say yes. However, before you sign that loan document, be sure you know what you’re getting yourself into. It might be riskier than you think.
Things to think about when you consider whether to co-sign for a family member:
- The loan will appear on your credit report and will affect your credit score.
- If your family member cannot make the payments, your credit will take a big hit. Plus, if serious enough, the lender could garnish your wages, your social security payments, or can possibly even take legal action against you.
- Even if they do make the payments on time the entire life of the loan, the loan will always appear on your credit report, and could affect your ability to borrow. When you apply for a loan, the lender will think the co-signed debt is YOUR debt.
- Co-signing a loan is a generous act and you will take full responsibility to pay it, so consider the risk and be aware of them before you make that decision.
- If you really want to help your family member or even a close friend, consider loaning them the cash money instead. This way, you can still feel good about helping them out but it will not affect your credit rating.
If you are considering this in the near future contact our loan professionals at Eastex Credit Union, and we can assist you with your concerns and questions.