If you’re thinking about being a co-signer on a personal loan for a family member , then you are being very kind. This will help make them eligible for a loan that they normally may not be approved for. You need to make sure that your decision isn’t a light one. It will be your responsibility to pay the loan in the event that your family member fails to do so.
You many not realize it, but this loan will show up on your credit reports as well. Therefore, if the person you’re co-signing for fails to make the payments, it will hinder your own chances of getting yourself a personal loan in the future. And even if you still managed to get approved for your own, the interest rates could be sky high—all because you co-signed for someone who may not be as responsible as you. If you still feel it’s a good idea to co-sign for them, make them understand that it will be only for a set time period, since the larger the amount you co-sign for, the longer the period of time you’re going to be part of it.
Considering loans can either positively or negatively impact your credit scores, it’s important that you set the loan up in way that you’ll be able to access the account details. This will make it so that you can find out what all has been paid and what is still owed on the loan. Set something up with the lender so that they will keep you updated with any possible late payments or non payments. Many times, co-signers aren’t even aware that there is an issue with the payments until it’s too late.
All though co-signing on a loan for a family member or friend is helpful for them, it can also affect your credit and the relationship you share with them as well. Nothing can destroy friendships as much as money can. It’s very important that you look at all the circumstances leading up to their wanting a co-signer in the first place. If it’s due to money problems due to mismanagement, then you’re not doing yourself or them any favors. If however, it’s the result of money problems that they couldn’t control—such as a job loss, then you may consider doing it.
In order to minimize your own risk as the co-signer, don’t let it become a common thing. Word will get out quickly about your kindness, and you may find more friends and family members wanting you to do the same for them. If you’re worried about your own finances, and that your credit won’t hold up should the borrower fail to pay the loan, then don’t co-sign at all.
One thing you can consider is to have the borrower verify payment information with you regularly. This can be done by showing you statements and receipts each month. You can also get them to purchase insurance on their personal loan so that the payments can be covered in cases such as illness, death, or job loss.
Co-signing someone’s personal loan for them is more than simply providing your signature. You are actually putting your own credit history and financial worthiness on the line for them. This is why it’s extremely important for you to review their reasons for needing the loan as well as past spending patterns. If they still owe other people money and are trying to live beyond their means, then you can walk away. If you do choose to go forward with co-signing a personal loan, it’s your responsibility to make sure that the loan is being paid for.
