Someone that you care about has asked you to co-sign for him. He assures you that he has the ability to pay for that car, that home, or that lease. You know that he is currently working, and you trust him. Should you do it?
That depends. Here are the things that you need to think about before you decide:
- If he stops making his payments for whatever reason (illness, job layoff, personal problems, injury, or irresponsibility), the creditor is going to come to YOU to make the monthly payment. If you co-sign a lease and there is a default, you can be sued if you don’t pay through to the end of the lease term.
- If you have to, can you afford to make his monthly payment and still meet all of your other responsibilities on time? If so, for how long?
- Can you afford to have this financial responsibility show up on your credit report? Will it make you appear “overextended”? Will it keep you from getting a loan for something that you need in the future?
- If the worst happens and he is unable to make his payments is the property sale-able? How long do you think it would take to sell it and will you be willing to tell your friend that he must give it up?
- Have you thought through all the possible implications and considered anyone else in your life who could be significantly affected by this decision if things were to “go wrong” (your spouse, children, business partner)?
Co-signing a loan or lease is not something that should be taken lightly. The unexpected does happen. Be sure to go into the situation with your eyes wide open.
Also beware of any situation in which someone promises you something of value for co-signing the loan or promises you something “once they get the money”. This is a red flag.
