Co-signing is enabling destructive behaviors more often than not.
In a few cases life throws some tough pitches. Still co-signing is not the solution.
Your doing everyone on a favor by just saying no, thank you.
Matt make many excellent points below.
This was a painful week for a prospective buyer on one of my listings. He found out after getting his offer accepted that a late payment was made in May on a car loan he consigned on last year. The net result was that his credit score dropped below the level needed for him to get a loan.
Most people want to be helpful, and when a family member or friend who seems to be stable needs a cosigner on a loan the temptation is there to lend a hand. After all, you know this person. They are responsible, they pay their debts, they are honest. However, situations can change, and despite someones best intentions, they may not be able to make the payments on time due to illness, job loss, or other unforeseeen circumstances. And when that happens, the cosigners credit is affected.
In most situations where two people are on a loan there is joint and several liability meaning that if one party bails, the other party is on the hook for the full amount of the loan. In the case of a car loan, lets say the person who had agreed to make the payments just stops making them, and refuses to relinquish the property to boot. You could take the other person to court and seek to have the court award the property to you, but in the meantime you would need to pay on the loan to avoid massive damage to your credit. Also, if there is a tacit agreement between you that the other person will make all the payments, you may not be aware if they are being made in a timely fashion. This can be devastating for your credit.
If you are planning to buy a home and you are approached by someone wanting you to co-sign a loan, you should consider what the worst case scenario would be. If the worst case scenario is that your credit would be damaged and you would not be able to purchase the property as a result, then you need to consider that as being with the realm of possibility.
Again, most people want to help a person in need, especially a child or close relative who may not have any credit or who is just getting their start out of college, a divorce, a relocation or the like. In these situations it's important to remember though that your name and your credit are on the line, and if your credit is tarnished, it may take years to recover from the damage.
Matt Grohe, RE/MAX Real Estate Concepts 3125 Douglas Ave Des Moines, IA
Online at: http://www.MyIowaHome.com