Co signing is a terrible idea, unless you have lots of money and can assume the loan . The lender doesn't feel the borrower is a safe risk for them, so that should be your best indicator. If your friend doesn't pay- you have to. It will affect your credit rating and ability to borrow- it's as if it's your loan.
You are just as liable on the debt as the original borrower.
Sometimes, by a lot. You are saying that the lender can try to get you to pay without first trying to get the borrower to pay. You are saying the lender can sue you if the borrower does not pay. You are tying up your credit.
You may have to pay up to the full amount of the debt if the borrower does not pay. You may also have to pay late fees or collection costs, which increase this amount. The creditor can collect this debt from you without first trying to collect from the borrower.
Proverbs 6:1-5 even provides instructions for getting out of this type of mess should someone knowingly or out of ignorance get into it. God makes it abundantly clear through these Scriptures that we should NOT cosign or guarantee debts.
The benefits to the borrower
A cosigner might help: Get a reduced security deposit on an apartment lease. Get a lower interest rate and lower monthly payment on a loan for a car. Secure a mortgage with a lower interest rate.
Proverbs 11:15 Amplified Bible (AMP)
He who puts up security and guarantees a debt for an outsider will surely suffer [for his foolishness], But he who hates (declines) being a guarantor is secure [from its penalties].
If a borrower has low credit scores or little to no credit history, adding a co-signer to their loan application may give them a better chance of being approved by the lender.
However, cosigning a loan comes with several risks. The cosigner is legally responsible for the debt if the primary borrower can't make payments. Any late or missed payments can negatively impact both parties' credit scores.
Co-signers can make a written request to the lender to be released from a loan. In certain cases, like some student loans, there may be a provision that allows a co-signer to take their name off a loan. Most loans, however, do not include such a provision.
A co-applicant can increase your chances of getting approved for a loan, but it can also hurt your chances depending on the person you choose. Since both applicants' credit scores and income are evaluated when you apply, you need to be extremely careful with who you choose as a co-borrower.
There are several reasons that a borrower might choose to apply with a co-applicant. A co-applicant may be a family member or friend willing to help the borrower obtain funds for a loan consolidation or vehicle purchase. In many cases, a mortgage loan will include co-applicants who plan to purchase a home together.
Co-signing a credit card for a friend or family member is a big leap to take and one that could hurt your credit score if the person you sign with doesn't pay the card payments on time.
A co-signer only has responsibility for the loan. The lender will contact you if there are late payments or the primary borrower defaults. Since a co-signer essentially acts as a guarantor for the primary borrower, you must pay the loan if the primary borrower is unable to. But that has no impact on your insurance.
Co-signing your friend's loan might seem like a nice thing to do. But it can put many things in your life at risk, including your finances, your credit score and even your friendship.
Risks of co-signing a loan
This can affect your credit scores, increase your debt-to-income ratio and potentially lead to legal action if the loan isn't repaid. It's also important to note that as a co-signer, your credit could be affected even if the primary borrower makes all their payments on time.
At the end of the day, while the idea of cosigning a loan sounds loving to those we are doing it for, God's Word reminds us time and time again in the book of Proverbs that this is an unwise way to manage our finances.
Your best option to get your name off a large cosigned loan is to have the person who's using the money refinance the loan without your name on the new loan. Another option is to help the borrower improve their credit history. You can ask the person using the money to make extra payments to pay off the loan faster.
Cosigning can affect your ability to get financing.
In addition to the impact on your credit scores, lenders may include the payments you cosigned for when calculating your debt-to-income (DTI) ratio. A high DTI can make getting a loan or line of credit more difficult.
You May Be Sued
The lender can file a lawsuit against you for any unpaid part of the debt, even if they don't sue the person you co-signed for. Or they may sell your debt to a collection agency, who then tries to get back as much as they can by suing you.
Can anyone be a guarantor? Almost anyone can be a guarantor. It's often a parent or spouse (as long as you have separate bank accounts), but sometimes a friend or relative. However, you should only be a guarantor for someone you trust and are willing and able to cover the repayments for.
Matthew 18:27, 30, 32, 34 - Forgive because your debts have been forgiven. Luke 7:42-43 - He who is forgiven much (debt) loves much; he who is forgiven little (debt) loves little. Romans 4:4 - Wages, like a debt owed, must be paid. Colossians 2:14 Jesus canceled the record of debt we owed by nailing it to the cross.
This proverb warns women to pursue beauty at the expense of virtue because beautiful women without discretion eventually get treated like unwanted unclean unattractive animals. Scripture gives us the advantage in a cursed world to see the big picture from a better perspective.