When a loved one asks you to cosign a loan, it can feel like a simple act of support. After all, they just need your good credit to qualify, right? Unfortunately, cosigning is far from harmless. It’s not just a favor. It’s a legal commitment that ties your financial future directly to someone else’s borrowing habits.
Many people agree to cosign for family or close friends without fully understanding the risks. They believe they’ll never have to make payments or that the borrower will always pay on time. But if things go wrong, and they often do, you’re left responsible for a debt you didn’t even benefit from.
Before you sign on the dotted line, here are six reasons you should never cosign, even for family members.
1. You’re Legally Responsible for the Entire Loan
When you cosign, you’re not just vouching for someone’s creditworthiness. You’re agreeing to pay the loan if they can’t. Lenders don’t see a distinction between the primary borrower and the cosigner when it comes to repayment. If your family member misses a payment or defaults, you’re on the hook for the full amount.
This legal responsibility can cause significant financial stress, especially if the borrower’s circumstances change due to job loss, illness, or unexpected expenses. Even if they’re trustworthy, life happens, and you could be left paying off their debt for years.
2. It Can Ruin Your Credit Score
Every missed or late payment made by the primary borrower shows up on your credit report. Even if you’ve always been diligent with your own bills, one missed payment by your family member can drag down your credit score significantly.
A lower credit score affects your ability to secure future loans, mortgages, or even favorable interest rates. It could also hurt your chances of renting a home or qualifying for certain jobs that require a credit check. The damage caused by one missed payment can take years to repair.
3. It Increases Your Debt-to-Income Ratio
When you cosign a loan, the amount of that loan is added to your own debt profile. This increases your debt-to-income ratio, making you look riskier to lenders. Even if you’re not making payments, the loan counts as your debt.
This can be a serious problem if you need to apply for a mortgage, car loan, or any other type of credit in the future. Lenders may see you as overextended, even if you’ve never missed a payment yourself.
4. It Can Destroy Relationships
Money and family don’t always mix well. If the borrower defaults and you’re forced to make payments, resentment and tension can build quickly. What started as an act of kindness can spiral into arguments, strained relationships, or even permanent rifts.
Even if you never end up paying, constant stress about whether they’ll keep up with payments can create a wedge between you and your loved one. Once money is involved, family dynamics can change in ways that are difficult to repair.
5. You Have No Control Over the Loan
As a cosigner, you have no say in how the borrower uses the loan or whether they make timely payments. You’re tied to the loan but have zero control over its management. If they miss payments, rack up late fees, or misuse the funds, you can only watch as your credit and finances take the hit.
This lack of control is one of the most frustrating aspects of cosigning. You’re responsible for the consequences of someone else’s actions without having any authority to influence them.
6. It Can Impact Your Own Financial Future
Cosigning a loan can directly limit your financial options. If the borrower defaults, you might not only be stuck paying the debt but also have your own future plans, like buying a home, starting a business, or retiring comfortably, delayed or derailed.
Even if the borrower makes every payment on time, the loan will still appear on your credit report as a liability. This can lower your borrowing power when you need it most, affecting your financial flexibility for years.
What to Do Instead of Cosigning
If a family member asks you to cosign, consider alternatives that won’t put your financial future at risk. For example:
- Offer a smaller cash loan that you can afford to lose.
- Help them find a credit-building secured card or loan.
- Suggest they work on improving their credit score before applying.
- Recommend a financial advisor or credit counselor to help them qualify on their own.
These options allow you to support your loved one without putting your credit or relationships on the line.
Is Cosigning Ever Worth the Risk?
Cosigning a loan is a decision with long-term consequences that extend far beyond the initial favor. While it may feel like an act of love or loyalty, the financial and emotional risks often outweigh any potential benefits.
Would you ever cosign for a family member, or have you learned the hard way why it’s best to say no?
Read More:
How Some Retirees Are Being Tricked Into Co-Signing Risky Loans
9 Long-Held Traditions That Are Quietly Wrecking Family Finances
Riley Schnepf is an Arizona native with over nine years of writing experience. From personal finance to travel to digital marketing to pop culture, she’s written about everything under the sun. When she’s not writing, she’s spending her time outside, reading, or cuddling with her two corgis.
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