What You Need To Know About The Risks Of Co-signing Before You Say Yes

Edgar DeJesus • September 28, 2021

The Risks Of Co-signing Pros and Cons

The theme of co-signing has been coming up a lot lately.

 

Below is an excellent article you must read before you decide to co-sign.

 

Co-signing is great for the person you are co-signing for, but it can negatively affect you when you need to use your credit, whether you're purchasing a home, a car or appliances.

 

Please think twice before co-signing, no matter who you’re potentially going to co-sign for.


Original Source
Equifax

When a friend or relative asks you to cosign a loan, your first instinct may be to agree and help them out of a tight financial spot. That’s understandable: When done responsibly, cosigning can be an invaluable tool for helping a loved one with poor or limited credit history gain access to the housing or credit they need. However, before you pick up that pen and sign on the dotted line, be sure you know how attaching your name to someone else’s debt may potentially impact your own finances.


What does it mean to cosign a loan?


Cosigning for someone means you’re taking responsibility for the loan, lease or similar contract if the original borrower is unable to pay as agreed. Whatever you cosign will show up on your credit report as if the loan is yours, which, depending on your credit history, may impact your credit scores.


Cosigning a loan doesn’t necessarily mean your finances or relationship with the borrower will be negatively affected, but it’s not a decision you should make lightly. Before you agree to help out, sit down with the borrower to discuss the situation and the borrower’s plan to keep up with their financial obligations. Make sure you both understand what is required of you as the cosigner, and together weigh the pros and cons of this action on your relationship. Take special care to discuss what will happen should the borrower be unable to keep up with their payments as agreed and ensure they understand how you may be affected as well.


The benefits of cosigning a loan


Clearly, cosigning a loan is most beneficial for the individual for whom you agree to cosign. It can be a great way, for example, to help your child build credit. When a young adult is just starting out, it can be hard to get a loan or credit card with a decent interest rate because they lack the credit history that lenders use to determine if a prospective borrower is reliable. Cosigning for your child allows them to start building the credit history they need while reassuring the lender that they’ll get repaid.


Possible disadvantages of cosigning a loan


By cosigning for another individual—child or otherwise—you are putting yourself on the line for that person’s loan. If the borrower is responsible in their repayment habits, there should be no negative impact on you, but if you find that is not the case, you could be seriously affected:


  • It could limit your borrowing power. Potential creditors decide whether or not to lend you money by looking at your existing debt-to-income ratio. Depending on how much debt you already have, the addition of the cosigned loan on your credit reports may make it look like you have more debt than you can handle. As a result, lenders may shy away from you as a borrower.


  • It could lower your credit scores. Because that debt shows up on your credit reports as if it were your own, your credit scores will be affected by any late or missed payments. If the borrower stops paying altogether and the loan goes into collection, that could also go on your credit reports, and the bill collectors could come after you to get their money. Lenders or collectors could even sue you, garnish your wages or put a lien on your property in an effort to collect the balance of the debt.


  • It could damage your relationship with the borrower. You should also consider how cosigning a loan might impact your relationship with the borrower. You’ll be tied to this person, and any possible financial upheavals, for the term of the loan, whether that’s six months or 10 years. You’ll be responsible for repayment if the borrower has financial difficulties or if something else goes wrong, and your relationship could suffer.


As with many aspects of personal finance, there’s nothing wrong with helping out a friend or family member in need. Just make sure that you’re ready for any impact on your own financial situation before you lend a hand to a loved one.


“Here’s what to do now… download your free homebuyer ebook, click here.” 

 

My name is Edgar DeJesus. I’m the mortgage advisor and branch manager of Treasure Coast Home Loans. Call or text, (772) 444-6362, with any questions that will let me separate opinion from opportunity. 

 

Thank you for taking the time to read my latest real estate and mortgage report.


Start your pre-approval

Get Ebook

Start Your Mortgage Application with Treasure Coast Home Loans

Your Local Mortgage Broker

Mortgage Broker Port St. Lucie, Florida

Learn More About the Mortgage Process.


Check Out Our Google Verified Reviews

By Edgar DeJesus August 26, 2025
Expert mortgage broker advice for home buyers and borrowers seeking financing options. When it comes to securing a mortgage loan, few metrics matter more to lenders than your debt-to-income ratio, commonly known as DTI. As mortgage rates continue to fluctuate and lending requirements evolve, understanding your DTI has become more crucial than ever for prospective homebuyers. Recently, exciting developments in the mortgage industry have introduced new loan programs allowing DTI ratios up to 60% for qualified applicants, opening doors for borrowers who previously might not have qualified for traditional financing.
By Edgar DeJesus August 25, 2025
Buying a home is one of life’s most significant financial decisions, and navigating the mortgage loan process can feel overwhelming. Whether you’re a first-time homebuyer or refinancing your current property, understanding what to do—and what to avoid—throughout the loan process is crucial for success. This comprehensive guide will walk you through the essential do’s and don’ts before, during, and after your mortgage application to ensure a seamless path to homeownership.
interstate home buying, relocating to new state, out of state home purchase, relocation mortgage, ho
By Edgar DeJesus August 21, 2025
Essential toolkit for buying a home in a new state. Expert tips on mortgage pre-approval, market research, tax implications, and avoiding costly mistakes when relocating.
bank statement loans, self employed mortgage, 1099 loans, P&L statement loans, alternative income do
By Edgar DeJesus August 20, 2025
Bank Statement Loans & Self-Employed Mortgage Options | Alternative Documentation Loans Meta Description: Discover bank statement loans, 1099 loans, and P&L statement mortgages for self-employed borrowers. Learn how alternative income documentation can help you qualify for a home loan.
By Edgar DeJesus August 19, 2025
"Home Improvements That Actually Increase Property Value | Expert Guide 2025"
home electrical inspection, homeowners insurance cancellation, electrical system inspection, home bu
By Edgar DeJesus August 18, 2025
Home Electrical Inspection Guide: Avoid Insurance Cancellation After Closing | Homebuyer Tips Learn how proper electrical inspections and insurance planning can prevent costly surprises after closing. Expert advice on protecting your home investment from electrical system issues.
jumbo loans, jumbo mortgage, high-balance loans, luxury home financing, non-conforming loans
Seconda
By Edgar DeJesus August 13, 2025
Meta Description: Discover insider secrets to securing jumbo loans with ease. Learn qualification requirements, strategic tips, and how mortgage brokers can streamline your luxury home financing process.
home buying process, first time home buyer, mortgage pre-approval, house hunting, home purchase step
By Edgar DeJesus August 7, 2025
Complete guide to the home buying process from decision to closing. Learn first-time home buyer steps, mortgage pre-approval, house hunting tips, and closing process. Expert advice for 2025.
By Edgar DeJesus August 6, 2025
Congratulations on purchasing your new home in the Sunshine State! As a new Florida homeowner, you’re about to discover one of the state’s most valuable tax benefits: the homestead exemption. This powerful tax-saving tool can reduce your annual property tax bill by hundreds or even thousands of dollars, making homeownership more affordable and putting money back in your pocket.
mortgage privacy protection, unwanted mortgage calls, homebuyer privacy, trigger leads, mortgage sol
By Edgar DeJesus August 5, 2025
Learn how the Homebuyers Privacy Protection Act will end unwanted mortgage calls and protect your privacy during the homebuying process. What every homebuyer needs to know.