Reasons Why You Should Never Co-Sign for a Loan

There are many instances where you may be approached by a member of the family or even a close friend to co-sign a loan for a car or personal loan and in some cases even for a mortgage.

If you are financially secure and those around you are not then you may well find yourself in a position where someone asks you to help with one or more of these scenarios.

Most people feel unnecessarily bad when they feel they are forced to say no to these types of requests and they should not. Many even acquiesce to them without considering the potential ramifications of doing so.

There are a variety of reasons why co-signing is a bad move, especially if the person you are signing for has shown a history of bad financial decisions.

It is one thing to co-sign for a child who has shown financial responsibility and needs a co-signer due to a non-existent credit history and another all together to sign for someone who has established a bad credit record and needs the back up for that reason.

The former will take some thought and consideration before deciding, the latter should take no time at all to say no to.

The major problem with co-signing is the fact that you can and will be held responsible for the outstanding amount of the loan or mortgage should for any reason the loan owner become unable or unwilling to repay the loan.

You can even be sued by the lender if the loan is defaulted on in any way and it is YOUR credit report that will also suffer if that happens. Any missed or late payments show up not just on the loan owners credit report but also on the co-signers as well.

Another thing to consider is your own needs. If you have an outstanding balance on a co-signed loan on your credit report you may well be turned down for credit for yourself when you need to buy something and need to use credit to make the purchase.

The last and by far most important reason not to co-sign loans for friends and family members is the strain they can and do put on a relationship if things go south.

If you say no, a person will eventually get over it but if someone leaves you on the hook for a large loan amount it can take years to repair that relationship if it is even possible to do so.

The old adage about never doing business with friends or family certainly holds true when it comes to co-signing. Avoid at all costs.

What you have to also keep in mind is that many times those that are asking you to co-sign may have credit issues and this is the reason they need someone to sign for them. You may want to rely on the wisdom of the lenders here who are asking for an additional signature.   They are indicating that the individual is a risk, and you may want to heed the warning.


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Sam Seidman, CPA, CA, LPA
629 Sheppard Avenue West
Toronto, Ontario
M3H 2S3

Telephone: (416) 398-1700
Fax: (416) 398-6226

Chartered Professional Accountant, Chartered Accountant, Licensed Public Accountant


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