Finance Quick Answers
My relative has asked me to co-sign a loan. Is this a smart thing to do?
When someone asks you to co-sign a loan, be careful of the risks involved. "Vouching for a friend or relative suggests that you are being asked to be a credit reference; in reality, you are taking on the responsibility to repay the debt," says Sandra Welmer, staff attorney of the Federal Trade Commission. That means if the primary applicant cannot pay, you must cover the entire unpaid balance. Also, in most states, the lender can sue co-signers first because they have more liquid assets. The loan may also show up on your credit report and potentially limit your ability to borrow. To protect yourself, make sure you can afford to cover the loan, in case the borrower reneges, before you co-sign. Also carefully read and research all loan terms.
Sandra McKinnon, Consumer & Family Economics Specialist, University of Missouri Extension
Cynthia E. Crawford, Ph.D., Consumer & Family Economics Specialist, University of Missouri Extension
Last update: Saturday, July 26, 2008