Learning from Our Mistakes: Co-Signing Could Lead You into Financial Trouble!

Perhaps in the past you were in a situation where a close friend, a relative or even your own son asked for help in obtaining a mortgage loan, a credit card, a private loan, a student loan, a car loan, etc, etc by co-signing for them. And because of your good relationship with them or because you felt obligated to help them out, after all they are your family members, you agreed and put your financial future in jeopardy.

Statistically speaking, co-signers have a very high chance of hurting their relationships and trust because of friends and family members defaulting on loans and co-signers are left behind legally and financially responsible for the repayment of such loans.

I am not talking about cases where husband and wife committed themselves to buying a home so they both agree to get a mortgage loan or where a father and son together buy a car so that the dad could use the car for work and the son on the weekends.

I am talking about the cases where a family member asks you to help them qualify for a home by co-signing for them or where you are asked to help them qualify for a car, also by co-signing. The reason why they didn’t qualify in the first place is because of their past irresponsible financial history, aka low FICO score. And in many worst cases you are asked to sign as the primary applicant thinking that in a few months or a year you will transfer the financial responsibility back to your family member.

What they don’t tell you or what the loan broker does not tell you is that there are high costs and a high risks involved in trying to refinance and transfer the property from one person to another, and not to mention that lying on a loan application is illegal.

If your family member and their mortgage broker promise you that in about six months or less than one year you will be able to refinance the home and take yourself out of the loan the deed the property back to your family member, run for the hills and don’t listen to anything else that they tell you.

We all know that it is very hard to break bad habits, specially bad financial habits, so when you are in a similar situation ask yourself these questions, what guarantees that in six months or a year your family member won’t have more credit card debt? What guarantees that they will have a better fico score? What guarantees that they won’t loose their job and not be able to afford the home any longer? What guarantees that they won’t get hurt and not be able to afford the payments while they recover? What guarantees that they simply won’t decide to walk away from the deal? And in today’s market, what guarantees that the property will appreciate enough in value to refinance the property?

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You have to remember that when you co-sign on ANYTHING you are in a contract and agree to accept legal and financial responsibility if the main account holder defaults on the loan. You not only run the risk of ruining your credit if they miss one payment or two but if they default on the loan all together, the lender will most definitely go after you because they know you have more assets and are more financially responsible since the main singer needed you to qualify for the loan. Lenders could garnish your wages and make you pay for legal fees on top of all the late fees the account may have already accumulated and in the case of a mortgage loan the consequences are even greater.

Learn from your mistakes and from others, don’t co-sign on the dotted line simply to help someone else qualify for a loan.