Do not cosign a loan

At some point in your life, a relative, friend or colleague will ask you to cosign a loan. A cosigner ‘agrees to be responsible for a loan if the primary borrower has trouble paying it back’. It will likely be a young family member without a credit history, income, or assets base to be eligible for a loan or a friend/relative with bad credit.

As difficult or relationship straining as it may be at the time, it’s a good idea to say no to cosigning. There is a reason why the individual cannot take out a loan, financial institutions do not believe they can pay back the money. The strain on your relationship will be much worse later on when you are forced to pay back the loan yourself in its entirety.

If you must do something, offer to be a guarantor on the loan rather than a consigner. If you cosign, creditors can claim the debt directly from you. The person you cosign for has no liability. If you become a guarantor for a loan, creditors must do everything they can to get the money from the original borrower. Only then, can they ask you for the money.