 | Mark Kolarik is the President of the Kansas Teachers Community Credit Union, located in Pittsburg, KS, since 10-2002 and is a board member of the Kansas Corporate Credit Union located in Wichita, KS . He has been employed in the financial service industry for the last 31 years, having worked in several credit unions for 21years and 10 years in the banking industry. He holds a Bachelor of Business Administration degree from the University of Wisconsin-LaCrosse and is a Certificated Credit Union Executive. |
Banking & Finance
2012-06-05 09:30:14
Should I Co-sign on a friend’s loan?
Q: Should I co-sign on my friend’s loan to purchase a used vehicle?
A: Think twice before co-signing your friend’s loan. You should be willing to do almost anything to help a friend except co-sign a loan. Here’s why co-signing is a financial land mine:
You may be on the hook to repay the loan
Someone needs a co-signer because a lender isn’t completely comfortable with that person’s finances. If your friend gets sick, dies, loses a job or is otherwise unable to pay back the loan, the lender may look to you to make the payments on the loan. If you refuse, it can get nasty, and it can include the lender filing a collection suit against you.
It may hurt your credit
Late payments, repossessions or collections can show up on your credit report in addition to your friend’s. Those black marks can stay on your report for as long as seven years and may increase your credit score. The black marks may affect your chances of getting a loan in the future or cause you to pay a higher interest rate to obtain a loan.
It can hurt down the line
Even if the loan is being paid on time, the co-signed loan payment would be included in the co-signer’s debt-to-income ratio calculation, when applying for a loan. The extra payment will increase the co-signer’s debt-to-income ratio and may exceed the lender’s ratio limits. If the ratio limits are exceeded, there is a chance your loan request would be denied.
I would recommend that you not co-sign your friend’s loan. This will not only protect your credit but also maintain your friendship.
