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Read This Before You Think About Becoming a Cosigner

Last Updated: April 15, 2018 BY Michelle Schroeder-Gardner - 63 Comments

Disclosure: This post may contain affiliate links, meaning I get a commission if you decide to make a purchase through my links, at no cost to you. Please read my disclosure for more info.

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Cosigning A Loan - Read This Before Being A CosignerRecently, the topic of cosigning a loan came up in a conversation I was having with a friend. Someone I know of cosigned a loan for another person, and now the original borrower isn’t paying any of the monthly payments. They are doing this on purpose – to get back at the person who cosigned a loan for them because of a recent falling out.

The above may sound crazy, but I have heard many stories where a person cosigned a loan and it went badly. Being a cosigner can have many consequences.

I did some research to see if there were any others who had shared crazy cosigning stories. I came across Learnvest’s article The Mistake That Plunged My Credit Score 200 Points. If you don’t believe me after reading today’s post that cosigning a loan, in general, is a bad idea, I recommend you read that article plus all of the comments on it.

Here’s a little snippet from that article:

It wasn’t until the fall of 2009, when I was thinking about getting satellite television, that I checked my credit report and discovered $10,000 in past due payments. My friend had missed not one, not two, but three mortgage payments!

Another interesting post is one I found on Reddit titled Co-Signing on a loan mistake.

As you can see, there are many who have an unfortunate story to share.

Here’s what you need to know about cosigning a loan.

 

What is a cosigner?

A cosigner is someone who agrees to be on a loan with another person so that they are more likely to be approved. For example, if your friend can only get a car with a cosigner (either due to them having a low credit score, not making enough money, etc.), then they may ask you to cosign so they can get approved.

However, a cosigner is agreeing to pay off the debt if the original borrower is unable to pay it in the future. So, even if the original borrower doesn’t pay a penny, the cosigner would have to make all of the payments or risk being sued, credit report damage, and more.

Related: Paying Off Debt And Budgeting: Tricks For Staying Motivated

 

Cosigning a loan may prevent you from being approved for future loans.

If you are thinking about buying a house, car, or something else soon that will need to be financed, you should think long and hard before you decide to be a cosigner on someone else’s loan.

This is for multiple reasons.

One, if the person doesn’t pay the monthly bills on time then you may be rejected for a loan in the future. Missed payments can damage your credit score and your credit report.

Two, your debt-to-income ratio will increase. So, even if your friend/family member pays every single bill on time, your debt to income ratio will increase and this may prevent a lender from approving your loan because they will think you have too much debt on your plate.

 

Being a cosigner isn’t something you can easily get rid of.

There’s not much you can do to remove yourself from a loan that you cosigned on. If the person isn’t making payments, you are stuck with it for the most part.

The loan would have to be refinanced to get your name off of it in most cases and there are many horror stories out there where the original borrower refused to refinance because then they wouldn’t be able to force the cosigner to continue to pay the monthly bill.

Plus, there are instances in which refinancing is impossible because of values tanking, the economy changing, and so on. So, while the original borrower may want to get you off the loan and refinance, it’s entirely up to the lender.

 

Cosigning a loan can ruin relationships.

Many cosigning relationships go sour. I have heard of many stories where someone cosigned a loan for someone else and then didn’t talk to them for decades because of a falling out of some sort.

I have always been a firm believer that money and relationships do not mix well. If you are going to cosign or lend money to someone then you should consider it a gift because there is a chance that you will never see that money again.

 

Cosigning a loan is up to you.

Everyone always feels like all of the cosigning horror stories out there would never happen to them. However, isn’t that how you think all cosigners felt at one time as well?

It’s up to each individual person to decide if they will cosign. However, I want you to remember that if you cosign then you should make sure that you can afford to make the monthly payment.

You never know – one day you may be making them. The original borrower may be a great person, but they may lose their job, have an unexpected expense come up, or something else that prevents them from paying their bills.

Cosigning a loan may not always be bad. However, I believe it’s better to realize what the consequences may be. It’s always better to be prepared!

Would you ever try cosigning a loan and being a cosigner? Why or why not?

 

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63 Comments
Filed Under: Budget, Debt Tagged With: Budget, Debt

About Michelle Schroeder-Gardner

Michelle is the founder of Making Sense of Cents, a blog about personal finance and traveling. She discusses how her business has evolved in her side income series. She paid off $40,000 in student loans by the age of 24 mainly due to her freelancing side hustles. Click here to learn more about starting a blog!

Comments

  1. Steave @ Monster Piggy Bank says

    October 19, 2015 at 4:50 am

    I have never given enough thought about being a cosigner. That’s why I have never rejected someone’s request. Now, I think I am gonna give it a second thought. Thanks Michelle.

    Reply
    • Michelle Schroeder-Gardner says

      October 19, 2015 at 11:35 am

      So, are you currently a cosigner for someone?

      Reply
  2. Cindy Brick says

    October 19, 2015 at 5:05 am

    I turned down one request to cosign — even though she was a friend.

    When another much-loved person asked the same thing, regarding a student loan, we didn’t hesitate. After all, she’d make the payments regularly…right?

    After a missed payment here and there, our credit score dropped more than 100 points — and we started making regular payments on the loan.

    More than two (and I think three) years later, we are STILL making payments on the loan. Even though we have encouraged, demanded and finally threatened. It doesn’t matter. If we want to keep our score improving, until we know for certain that the loan’s paid off, we need to keep making payments.

    Sigh.

    Reply
    • Michelle Schroeder-Gardner says

      October 19, 2015 at 11:35 am

      This is EXACTLY why you should not cosign. Thank you so much for sharing your story – hopefully others will see this!

      Reply
  3. Luis Rodriguez says

    October 19, 2015 at 5:50 am

    I consigned a car loan for my son who has recently gotten out of the army. His prospects of getting a job were good but then he moved out of state and has been having challenges finding a decent job. Needless to say the car loan has fallen past due. I love my son but I would definitely think twice or more before I do this again.

    Reply
    • Michelle Schroeder-Gardner says

      October 19, 2015 at 11:43 am

      Thank you for sharing your story. I hope things get better Luis.

      Reply
  4. Kalie @ Pretend to Be Poor says

    October 19, 2015 at 7:16 am

    This is a really important message since co-signing can get people into so much trouble.

    Reply
    • Michelle Schroeder-Gardner says

      October 19, 2015 at 11:43 am

      Thanks Kalie!

      Reply
  5. Clarisse @ Reach Financial Independence says

    October 19, 2015 at 7:44 am

    I learned the hard way.I had a “bad friend” before, he asked me to co-sign his motorcycle loan. So without hesitation, I agreed with his favor, but after 3 months he was gone with the motorcycle!

    Reply
    • Michelle Schroeder-Gardner says

      October 19, 2015 at 11:44 am

      OH NO! Is he paying for it?

      Reply
  6. Jackie says

    October 19, 2015 at 8:04 am

    Certain people need a co-signer for a reason. It’s a horrible decision to sign for anyone. It’s horrible to put your friend on your cellphone plan if they don’t qualify for their own.

    The only time I think it’s acceptable to co-sign is if you’re a parent co-signing for your child, and you have the full expectation that you will probably be paying for whatever your child decides to buy. With that said, if your kid can’t get a loan on their own, they probably don’t need to be buying it anyways.

    Reply
    • Michelle Schroeder-Gardner says

      October 19, 2015 at 11:45 am

      I agree Jackie!

      Reply
  7. Holly@ClubThrifty says

    October 19, 2015 at 8:09 am

    I would only cosign for a family member – and only if I was prepared to pay the loan off myself if something happened. I would never cosign for a friend!

    Reply
    • Michelle Schroeder-Gardner says

      October 19, 2015 at 11:46 am

      Yes, you would have to be fully prepared to pay for it. Most of the bad stories I hear about are about family members not paying.

      Reply
  8. Natalie @ Financegirl says

    October 19, 2015 at 8:15 am

    All I had to read about was the title. I am so passionate about NOT cosigning and advising other people NOT to cosign. I really don’t think it’s a good idea.

    Reply
    • Michelle Schroeder-Gardner says

      October 19, 2015 at 11:46 am

      I agree!

      Reply
  9. Stefanie @ The Broke and Beautiful Life says

    October 19, 2015 at 8:29 am

    I don’t know if I could ever cosign a loan and that horror story you shared is exactly why. There are other alternatives I might consider, but not tying my credit to someone else.

    Reply
    • Michelle Schroeder-Gardner says

      October 19, 2015 at 11:46 am

      I agree!

      Reply
  10. Andrew says

    October 19, 2015 at 8:38 am

    I just had a falling out with a friend I grew up with. We were friends since before I can remember. He was the best man at my wedding and I was the best man at his. Then one day over seemingly nothing he stopped talking to me. I would have done anything for him… even probably would have co signed a loan. I am thankful I was never asked to, because I would probably have been stuck with it today. Don’t co sign unless you are ready to pay it back in full.

    -Andrew

    Reply
    • Michelle Schroeder-Gardner says

      October 19, 2015 at 11:47 am

      Yes, definitely!

      Reply
  11. Reelika @Financially Wise On Heels says

    October 19, 2015 at 8:46 am

    I have seen that many parents become cosigners for their “kids” who are in their 20’s. It’s hard to tell whether this is a good or a bad idea, it mostly depends on your financial situation as well. I don’t think I want to become a cosigned to someone, probably if anyone at all, s/he has to be a very close family member and I have to be sure s/he is a responsible person. Definitely very informative post!

    Reply
    • Michelle Schroeder-Gardner says

      October 19, 2015 at 11:47 am

      Thanks Reelika!

      Reply
  12. Emily @ th John & Jane Doe Guide says

    October 19, 2015 at 8:59 am

    I understand cosigning with a family member, especially a young adult child who hasn’t established credit yet. My dad did it for me on my first car loan, and I’m grateful for that fact. Outside of that circumstance, though, I can’t see doing it. There’s just so much risk involved.

    Reply
    • Michelle Schroeder-Gardner says

      October 19, 2015 at 11:47 am

      Yes, there’s a lot of risk!

      Reply
  13. Amy @ DebtGal says

    October 19, 2015 at 8:59 am

    I don’t think I would ever cosign for someone, for just the reasons you outlined. Scary stuff!

    Reply
    • Michelle Schroeder-Gardner says

      October 19, 2015 at 11:48 am

      Yes, definitely scary!

      Reply
  14. Jen@OurFrugalLife says

    October 19, 2015 at 9:05 am

    Wow, that’s crazy that someone would cause additional harm to their own credit in order to take down someone else’s. Other than mortgages and student loan’s, I’m against loans in general so I can’t envision any circumstance where I’d cosign a loan. I’m certainly not going to cosign on a mortgage for property that I don’t have a stake in and I’m hopeful that my kids will be able to avoid student loans when it comes time for their college. Yikes!

    Reply
    • Michelle Schroeder-Gardner says

      October 19, 2015 at 11:48 am

      I know, it’s a pretty crazy story!

      Reply
  15. Crystal says

    October 19, 2015 at 9:17 am

    I would cosign for an apartment or car for either of my sisters (although only one is still young enough and new enough to credit to ever need that), but they are responsible women who would pay their bills no matter how they felt about me.

    Other than that, I’d only ever cosign for a loan if the person really needed the loan for some reason and paid me the cash up front that would be making all the payments. Like if they were trying to build their credit and already had the cash on hand. I would take the money, make the payments automatically, and they could go on their merry way with better credit. That’s pretty much it.

    Oh, and if I have children and they need a cosigner when they are first making it on their own, I’d do it if they were responsible people with the income to cover the apartment or car or whatever, which I really hope they’d be, but I’m a realist and would say no if I really thought I’d get stuck with payments.

    Reply
    • Michelle Schroeder-Gardner says

      October 19, 2015 at 11:49 am

      It’s a tough decision. Mixing money and relationships can be hard.

      Reply
  16. Sarah says

    October 19, 2015 at 9:37 am

    Being a cosigner is SO dangerous. The only loans I’ve ever cosigned have been with my husband (AFTER we were married), although I don’t think that counts. 🙂 I learned this lesson early from my dad. As soon as we were old enough he had us establishing credit and didn’t even cosign our loans for school or our first car. He wanted us to be able to stand on our own two legs.

    Reply
    • Michelle Schroeder-Gardner says

      October 19, 2015 at 11:50 am

      Yes, my father did the same thing. It helped me so much!

      Reply
  17. Jim Wang says

    October 19, 2015 at 10:18 am

    I’ve almost never heard of a good story involving co-signing. In some rare cases, like parents for kids who they feel are responsible enough, are the exception but everything else… no no no.

    Reply
    • Michelle Schroeder-Gardner says

      October 19, 2015 at 11:50 am

      Yeah, it seems very rare to hear about a good situation!

      Reply
  18. Shannon @ Financially Blonde says

    October 19, 2015 at 10:24 am

    The only loan I would possibly cosign on is a student loan for my son that I essentially planned to pay off anyway because I plan to pay for his college. When you cosign, you really do have to expect that you will be paying off that loan and if you are not comfortable with that outcome, then you shouldn’t do it no matter how much you love and care for the signer.

    Reply
    • Michelle Schroeder-Gardner says

      October 19, 2015 at 11:51 am

      Yes, exactly!

      Reply
  19. Lila says

    October 19, 2015 at 12:12 pm

    I will *never* cosign on a loan. Even the bible has a verse about not signing on a loan for a friend and getting out of it as quickly as possible. Clearly even back in the day people thought it was a bad idea.

    Although my boyfriend’s parents cosigned a car loan for him and he paid it off. Stories like this are so rare.
    Just don’t do it is my motto!

    Reply
    • Michelle Schroeder-Gardner says

      October 19, 2015 at 2:14 pm

      Same here!

      Reply
  20. Elle says

    October 19, 2015 at 12:46 pm

    I would never be a cosigner. I’ve never been asked, but my husband has. We talked about it and we agreed never to do it. My dad had bad experiences with his family members (so my mother says), so I have somewhat became that cautious person.

    Reply
    • Michelle Schroeder-Gardner says

      October 19, 2015 at 2:15 pm

      I would never do it as well.

      Reply
  21. James says

    October 19, 2015 at 2:06 pm

    I’ve heard so many horror stories about this and they usually end in the way you described. I think the only way you can safely co-sign for someone is if you’d be willing to give them that full amount as a gift and not be bitter about it. If it goes into to default, that would be the only way to remedy the situation without trashing your credit, so I think folks need to think through what they would do in that scenario.

    Reply
    • Michelle Schroeder-Gardner says

      October 19, 2015 at 2:15 pm

      Yes, I agree!

      Reply
  22. Abigail @ipickuppennies says

    October 19, 2015 at 5:09 pm

    When my in-laws had to move in with us, they had no money, had walked away from their home and my FIL was 4 years away from getting even early retirement.

    I told my husband that we would NOT be cosigning for a car, no matter what they said. Luckily, he was completely amenable to that. Also luckily, my MIL is content not having a car. She’s already realized just how much would go into a car, insurance, taxes, tickets (my FIL is a terrible driver) and so on.

    So I guess one awkward situation has been averted.

    Reply
    • Michelle Schroeder-Gardner says

      October 19, 2015 at 5:12 pm

      Good! 🙂

      Reply
  23. Kate @ Money Propeller says

    October 20, 2015 at 12:08 am

    Co-signing for someone even for your own family is really dangerous. You will never know what will happen next, what if they refuse to pay with the loan?

    Reply
    • Michelle Schroeder-Gardner says

      October 20, 2015 at 11:22 am

      I agree!

      Reply
  24. Dominic @ Gen Y Finance Guy says

    October 20, 2015 at 8:15 am

    I learned my lesson after tying to help my dad out with a car loan. Never again!

    Reply
    • Michelle Schroeder-Gardner says

      October 20, 2015 at 11:23 am

      🙁

      Reply
  25. giulia says

    October 20, 2015 at 11:18 am

    Honestly I don’t think I could be a consigner especially after allt hat I’ve read,It could be dangerus between reations and friendship, what could happen if I would be consigner of my best friend and she never pay a penny of her debt?

    Reply
    • Michelle Schroeder-Gardner says

      October 20, 2015 at 11:23 am

      Yes, it would be a bad situation!

      Reply
  26. Natasha says

    October 20, 2015 at 12:40 pm

    Simply don’t do it! I too have heard horror story after horror story. People will not do right when it comes to money.

    Reply
    • Michelle Schroeder-Gardner says

      October 20, 2015 at 3:15 pm

      I agree!

      Reply
  27. Cindy says

    October 20, 2015 at 1:03 pm

    In my early 20’s, I cosigned on a $25,000 student loan for my sister. My mom agreed to back the loan, so I figured it was a no risk situation. As luck would have it, everything that could possibly go wrong went wrong. And most people don’t realize that the lender isn’t required to notify the cosigner that the borrower isn’t making payments. By the time I knew what was going on, the interest and fees had piled onto the loan (it ended up being close to $42,000), and my credit was completely ruined. A decade later, and I’m still dealing with the financial consequences. It’s also taken a tremendous amount of effort to repair my relationship with my sister.

    Reply
    • Michelle Schroeder-Gardner says

      October 20, 2015 at 3:17 pm

      🙁 I’m so sorry.

      Reply
  28. Steve Miller says

    October 20, 2015 at 4:57 pm

    Great post and good reminder about cosigning. I’ve been asked by brother and sister to cosign for them. No thank you. However, my son is in college and it was required that he have a cosigner to get an apartment, so we did cosign for him.

    Reply
    • Michelle Schroeder-Gardner says

      October 20, 2015 at 11:21 pm

      Good job!

      Reply
  29. Krystal says

    October 20, 2015 at 9:09 pm

    My parents cosigned my car loan, which I paid off early. I think in the case of family, use your discretion. However, I would never cosign a friend. I don’t even lend my friends money, so cosigning is out of the question for me.

    Reply
    • Michelle Schroeder-Gardner says

      October 20, 2015 at 11:22 pm

      It’s a sticky situation for sure.

      Reply
  30. Michelle Schroeder-Gardner says

    October 20, 2015 at 11:21 pm

    Yeah, I think it’s pretty horrible for a person to purposely not pay. I don’t know how people do that!

    Reply
  31. Cece says

    October 21, 2015 at 11:45 am

    Ugh!! I did this once upon a time when I was young, stupid and felt like I didn’t have a choice. I am still dealing with it. It was family. Just don’t do it. If someone can’t afford to get something on their own then they shouldn’t get it. I can see how parents might do this for a child as part of their parental duties but other than that it’s not a good idea.

    Reply
    • Michelle Schroeder-Gardner says

      October 21, 2015 at 1:34 pm

      I agree! I’m so sorry that you had to deal with this 🙁

      Reply
  32. John Wake says

    October 26, 2015 at 3:00 pm

    I can’t think of one situation where cosigning a loan would be a good idea. Can you?

    In real estate, we run into similar situations. Incoming call;

    “I’m trying to buy a home but it turns out the mortgage guy says I can’t get a mortgage to buy a home because my ex is behind on her mortgage. How can I be responsible for that mortgage, I don’t even own that home anymore, I signed a quit claim deed on the house as part of the divorce?”

    They don’t realize that they can be responsible for the mortgage, kind of like a cosigner, even if they’re not an owner anymore. A well crafted divorce should prevent this scenario.

    Reply
    • Michelle Schroeder-Gardner says

      October 26, 2015 at 3:24 pm

      I don’t think it’s a good situation at all. You have to fully expect to pay it back just in case!

      Reply

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