Should you co-sign a loan?

Your son asks if you’ll be a co-signer so he and his wife can qualify for a mortgage. Or a friend who’s struggling financially wants to know if you’ll co-sign a car loan.

If anyone asks you to co-sign a loan, it’s not a decision to take lightly. You would be obligated to make any payments your family member or friend misses. In fact, you would be legally responsible for the entire loan amount.

Making your decision

The trust factor is key. Say the primary borrower is responsible, has a reliable income, and only needs a co-signer because their credit history is insufficient. You might feel confident to co-sign. However, if the borrower is known to be reckless with money, you may wish you hadn’t been asked.

You may also find it helpful to imagine your reaction if your family member or friend can’t make one or more payments. Would you be understanding of their situation or feel resentful?

Another concern is if word of your favour gets out. What if other relatives or friends now want you to co-sign, or ask for an outright loan?

Saying yes or no

When you feel confident in your family member’s or friend’s ability to honour the loan, co-signing can make a positive difference in their life and be gratifying to you.

If you decide against co-signing, you may wish to explain that it’s nothing personal. You’re aware that financial issues sometimes lead to damaged relationships, and that’s not a risk you want to take with them or anyone.