- Cosigning is the process of adding your name to the legal obligations that come with a mortgage or bank loan along with another person. This process is usually undertaken when a person who has no credit history or a poor credit history needs to borrow money but cannot get approved for the loan on his own. A cosigner with a better credit history can convince bank officials they can recover their investment if the loan goes into default. Cosigners are often the parents of the person taking out the loan.
- If you are asked by a friend, family member or acquaintance to cosign a bank loan, you should consider both your relationship and your financial situation before doing so. Even if you want to help and you trust the other person, if you are not in a stable financial situation, you could be endangering both your credit rating and the other person's by agreeing to be a cosigner. Unless you trust the person making the request and are in a position to cover the loan if the person cannot make payments, you should decline.
- The advantages of being a cosigner are primarily vicarious. When a parent, sibling or close friend agrees to cosign a loan, she benefits by knowing she has done something to help someone she cares about. Other than this, there are no tangible benefits to being a cosigner. If the person for whom you cosign goes on to become financially successful, he may be able to help you in the future if you need financial assistance.
- The most obvious risk of being a cosigner is that the person taking the loan may default on it or be unable to make the payments, leaving the cosigner liable. If you are the cosigner, this could leave you in a financially difficult spot and may have a detrimental effect on your relationship with the other individual. Most cosigners are close friends or family members, because the risk is too great for a casual acquaintance to take on the responsibility.
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