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On Being a Responsible Cosigner

Super Contributor

On Being a Responsible Cosigner

I don't want to debate whether cosigning a loan for familiy is good or not but if you do remember that you have a responsibility to the person you do that for to make sure they can really afford to make the payments so you don't dig them into a hole and put your own credit at risk.  You have to be able to afford to make the payments yourself if the other person can't.

 

I saw a post in the auto forum about a guy who's grandfather cosgined a loan that he can't afford to make the payments and is underwater on the loan.

10/17/2017 FICO: EQ 829 TU 830 EX 826
9 REPLIES
Established Member

Re: On Being a Responsible Cosigner

Agreed!  My dad co-signed a car loan for me when I was 18.  He never should have...it was too much for me and I was irresponsible.  When I couldn't pay it, he actually refused to help me which now 20 years later was the best thing he ever did for me.  I learned the hard way.  Messed his credit up for a bit, but he already had a paid off house and no debt so he wasn't worried about it.  It's the event that woke me up and taught me that no one gets bailed out.  I worked hard the next few years, drove really old cars I could pull a little money together for.  Eventually I paid off the loan.  Had my dad been in a different position financially, I could have really hurt him, but it was a lesson hard learned.  I will never co-sign a loan for anyone except possibly my kids if they have proven responsible enough to handle it but maybe too new with credit be able to get it on their own. 

The thing is, generally if someone who is old enough to have established credit needs a co-signer (this is a generalization, there are of course exceptions and very good reasons like identity theft and divorce) then they probably haven't been responsible with their own money and should be a big red flag that you don't want to get involved, no matter how much you want to help.

In the garden until 10/2019
Valued Contributor

Re: On Being a Responsible Cosigner

I rent out a cheap but quality car on Turo for $17-$19 per day typically.  If a loved one is in need of a car, I let them insure it in their name (and mine) and they can drive it as long as they want to and can pay insurance, gas and minor maintenance (oil, fluids).

 

That car cost me only $1500 and it's paid for itself just by keeping around for folks to use.

 

Since there are sites like Turo available now (and competitors), it's easy to have the car pay for its own maintenance.

 

I've only had to let family borrow that car twice in the 5 years I've had it and both times it was for just enough time for them to save up cash to buy their own $1500 used car.  Someone who can't qualify for a loan can do just fine buying a used car and driving it into the ground in a few years.

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Established Contributor

Re: On Being a Responsible Cosigner


marty56 wrote:

I don't want to debate whether cosigning a loan for familiy is good or not but if you do remember that you have a responsibility to the person you do that for to make sure they can really afford to make the payments so you don't dig them into a hole and put your own credit at risk.  You have to be able to afford to make the payments yourself if the other person can't.

 

I saw a post in the auto forum about a guy who's grandfather cosgined a loan that he cnn't aford to make the payments and is underwater on the loan.


If you think the person you're cosigning for can't really afford to make the payments...heck, if you even slightly suspect they can't really afford to make the payments....why cosign for them in the first place?

 

That's a big part of why topics like this inevitably come back to the good/bad aspects of the action, even when it's not solicited. If the action itself has consequences that can affect the subsequent actions being discussed, those initial actions simply cannot be disregarded.

 

Contributor

Re: On Being a Responsible Cosigner

I don't co-sign period. I also don't loan or rent my vehicles out. 

 

Some years back a relative wanted to borrow a vehicle while theres was in the shop. I refused. Relative finds another family mermber to borrow a car from........AND then the legal nightmare began.......relative who borrowed the the car ran a red light and ended up causing someone to spend the rest of their life in a wheelchair and eating thru a straw. The relative who loaned the car ended up getting sued too.

 

Maybe I just go thru life a little too paranoid, but then again, I rarely find myself left holding the bag either.

Super Contributor

Re: On Being a Responsible Cosigner

I would cosign for a close family member anytime as long as I could afford the payment and they really needed help.  I wouldn't expect anything in return.  You make the payment and the other person gives you the money so your credit is protected.

 

My father did that for me on my first car loan and even though I dug myself into loads of CC debt and late payments , I never missed that car payment or any car payment for that matter.

 

I agree cosigning and loans to family and friends usally never ends well but if you consider it a gift that you can afford to make, it can.  It is all up to how you view it and if you can afford to loose the money.  

 

 

10/17/2017 FICO: EQ 829 TU 830 EX 826
Senior Contributor

Re: On Being a Responsible Cosigner

I'm 0 for 2 on co-signing, as in I've been burned the 2 times I've done it.  Both times it resulted in late payments landing on my credit report, ruining my ~800 scores and both times it resulted in me having to pay $3500-$6000 to pay off the accounts.

 

I will never co-sign for anyone ever again, no matter who they are.

New Contributor

Re: On Being a Responsible Cosigner

I have no problem co-signing.  But 2 rules.

1. I  need to be able to afford to make the payments myself if needed.

2. I take care of the physical payments, and the person who cosigns is responsible for paying me.

 

I might get paid late a few times, and depending upon who they are I might have to waive a payment or two, or give a discount, but my CS is never effected.

 

Write off any missing money on your taxes and get up to 35% of the money back. They will need to report it and pay taxes, but chances are anyone who needs help making their payments doesn't make enough to actually pay taxes anyway.

 

And personal rule,  If I co-sign, it is an investment in that person. Sometimes investments go south, and I lose my money. But I don't blame the person. No beef with family. Business and love is seperate. 

Frequent Contributor

Re: On Being a Responsible Cosigner


Kree wrote:

I have no problem co-signing.  But 2 rules.

1. I  need to be able to afford to make the payments myself if needed.

2. I take care of the physical payments, and the person who cosigns is responsible for paying me.

 

I might get paid late a few times, and depending upon who they are I might have to waive a payment or two, or give a discount, but my CS is never effected.

 

Write off any missing money on your taxes and get up to 35% of the money back. They will need to report it and pay taxes, but chances are anyone who needs help making their payments doesn't make enough to actually pay taxes anyway.

 

And personal rule,  If I co-sign, it is an investment in that person. Sometimes investments go south, and I lose my money. But I don't blame the person. No beef with family. Business and love is seperate. 


I only co-sign for vehicle purchases. I have a similar set of rules and mindset as you.  In addition:

  • I must have a fairly healthy relationship with the other party (family, long-time friend, etc.)
  • The loan must be applied to a used vehicle that matches the situation at hand.  These days, a new vehicle is a "want". I only co-sign for a "need"
  • I get the other set of keys Smiley Happy

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New Contributor

Re: On Being a Responsible Cosigner


Mixem143 wrote:


I only co-sign for vehicle purchases. I have a similar set of rules and mindset as you.  In addition:

  • I must have a fairly healthy relationship with the other party (family, long-time friend, etc.)
  • The loan must be applied to a used vehicle that matches the situation at hand.  These days, a new vehicle is a "want". I only co-sign for a "need"
  • I get the other set of keys Smiley Happy

Good rules, I would personally disagree on the new vs used part.  I've found that a new (reasonably priced) vehicle is a better option.  It practically guarantees no repair costs due to the warrantty.   A reliable vehicle, and a flat monthly cost is very important for those who can barely make ends meet.  A broken car could equal loss of income in addition to the repair costs.  But thats just like my opinion.