Adding a co-signer can make a loan more attractive to lenders, but can cause serious repercussions if the co-debtor defaults.
A common question many of us face is whether to co-sign for a loan. Initially, co-signing a loan seems like a nice and supportive gesture. But helping a close family member or friend by co-signing can have major impacts on the future of your financial health.
Before you co-sign on a loan there are a few important things to consider:
First, in the event the person you co-sign for cannot pay the loan, you will be the one who is responsible. By becoming a co-signer, you are essentially taking on someone else’s debt. You are putting the future of your financial health into someone else’s hands. If they are unable to pay off the loan, you will be completely responsible to pay it off for them.
Next, co-signing can have a negative impact on your credit. Because of the debt you have taken on, your credit score can drop. Additionally, it will be harder for you to qualify for loans you need because of the increase in your debt-to-income ratio.
Lastly, although co-signing can make a loan more attractive to lenders, there are serious repercussions if the co-debtor defaults. This is the worst-case scenario and negative impacts may include you having to pay the money back in its entirety, a lower credit score and your bank account could be frozen.
Overall co-signing is a long-term commitment to take on someone else’s financial debt. This is where The Debt Doctors can play an important role in helping you to decide if you should co-sign or not. You can schedule a free consultation today and receive the guidance you need to make the best decision for your financial future.