A few years ago a friend asked me to co-sign on an apartment lease for him. This friend didn't have perfect credit and couldn't get the apartment without a co-signer on the lease. He assured me that he was cleaning up his credit; in fact, the manager of the apartment told him he could resubmit his application and probably wouldn't need a co-signer after the first six months of the lease.
He pleaded with me to help him this one time and promised me that nothing could go wrong. So, believing in my friend and that six months down the road I could have my name taken off the lease agreement, I took a chance and co-signed the contract for my friend.
Three months later my friend lost his job, couldn't afford his rent payments, and wound up moving back in with his parents. Complicating matters worse, my friend wound up owing additional fees for breaking his lease. When he couldn't afford those fees, guess who the management company came after? That's right -- his co-signer, me!
When you co-sign for a loan or a lease you're more than just a backup if the primary borrower can't repay his or her debts; you're a co-borrower! You share the liability even though you share none of the benefits of the loan or lease. Lenders can turn to you at any time to get back their money, not just when they've exhausted all efforts with the borrower.
"My ex-husband co-signed for a loan for a girl several years before we married. She was in the armed forces, and he got stuck with the entire bill. It took years before it was paid off," said Marjorie, a forum participant at http://www.savingadvice.com/forums/?styleid=6.
Christine, said "I do not recommend co-signing. I (now) feel strongly that if someone can't qualify on their own for something, they aren't ready to have it."
"Exactly. I would never co-sign for a loan for family, friends, whatever. I'd rather (warily) just give 'em the money," added Jesse, another forum participant.
Statistics support these unfortunate experiences. As many as 75 percent of co-signers are asked to repay loans when the original borrower has defaulted.
When considering co-signing, try not to let your emotional attachment or relationship with the borrower affect your decision. If you must co-sign, be cautious and take steps to protect yourself and your credit rating. Ask the lender to contact you if the borrower misses a payment. Ask if you can co-sign on the principal only and limit your liability for any other fees or penalties. It may be a long shot to get the lender to agree to these terms, but it's worth a try.
Finally, before co-signing a loan, a lease, or anything -- THINK TWICE!
James H. Dimmitt is editor of To Your Credit, a weekly free newsletter to help you manage your personal finances. You can subscribe to his newsletter and also get a FREE copy of your credit report when you visit: www.yourfreecreditreportnow.com.© 2005 James H. Dimmitt
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