You are going along with your day when the phone rings. When you answer, it’s your nephew, Joe. You are so excited to hear from him, you haven’t heard from him in weeks. What you aren’t so excited about though, is that he is asking you to cosign on his car loan.
Cosigning on a loan is a very big commitment to make, regardless of what type of loan it is. Here at Auto Credit Express, we understand the impact cosigning on a loan can have on your credit standing and potentially your finances.
What it Means to Cosign
When you are cosigning on a loan, you are taking on the responsibility of repaying it in the event that the primary borrower ceases to make the monthly payments. Essentially, you are a co-borrower. It will affect your credit in the following ways:
- The loan will appear on your credit report. This means that if you need to apply for a loan of your own, this will show up in your credit history as if it was your own debt. It is possible that it will affect the amount you will be able to borrow from a future lender.
- You are linked to the primary borrower until the loan is either paid off or refinanced. If your child/relative/friend/significant other stops making payments and you are unable to pay, it will not only reflect on their credit but yours as well.
What You Should Consider
In order to minimize the stress that cosigning can add to a personal relationship, you should keep the following things in mind:
- What kind of relationship do you have with this person and can you trust them to make the payments? You should take into consideration their ability to pay bills on time, hold down a job and what their living situation is. Are these things stable? In addition to that, are you in frequent contact with this person? If not, you may want to rethink signing on the dotted line.
- If you run into a situation where they cannot pay on the loan, can your relationship and finances take the strain? If they fail to pay, have you made an agreement with them to pay you back? Will you go broke in the event of their default?
We know that sometimes bad things can happen to good people, but ultimately, only you can be the judge of whether it is a good idea to cosign on a loan. Most times, these types of lending agreements are paid without incident; but when things go bad it can sometimes affect you for years afterwards. If you are looking for an auto loan in the wake of this type of situation, we here at Auto Credit Express feel that you deserve a second chance.
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