When You Should (and Shouldn't) Cosign a Loan
When a friend's credit isn't at their best, getting someone to co-sign a loan is a good way to get approval. Before you hit the dotted line, keep in mind just what you're agreeing to.
Under most circumstances, when a loan or debt requires someone co-sign before approval, it means the lending party believes it's too risky to trust the borrower on their own. There are a few situations where this may be alright. For example, cosigning a child's student loans, or helping a young person who's never borrowed before establish a line of credit. However, as finance blog The Simple Dollar points out, the bottom line is you have nothing to
gain and everything to lose:
Your friend or family member is going to get the benefit of the loan. If they choose to stop paying the loan because the business doesn’t work out, that loan is around your neck. If they can’t repay that loan because of an unforeseen accident or something else, that loan is around your neck.
If you're helping someone build their credit, you can start small with a limited loan amount or even cosigning a cell phone payment. Whatever you do, just remember before you sign that you're essentially betting against the financial institution's information that says not to lend money to the person you're signing for.