Co-signing for loans has become a common event in today's society. There are many times when a credit report is pulled and the person has co-signed on a loan for someone else. Co-signing can definitely help the person who is in need of a co-signor but it is rarely ever beneficial for the person who is co-signing.
If you or one of your borrowers has co-signed on a loan or is considering it, please remember the following:
1. If the loan goes into default, this WILL impact your credit. Even though you may not be making the monthly payments, a late payment will show up on your credit if a payment is made late. There are companies that claim to be able to remove these late payments but it is not always legal and can be difficult to have done.
2. Co-signing on a loan CAN impact your debt to income ratios. In some situations, the debt can be removed from your ratios. However, this can not be done in EVERY situation. The impact on your ratios can make the difference in your loan being approved.
3. If the person that you co-signed for were to ever file bankruptcy, it will code the items you co-signed for as being included in bankruptcy. When running this through underwriting programs, it can flag your file as having had a bankruptcy, even though you may have never filed for bankruptcy. This can be fixed in some situations by going back to the bureau who is reporting the debt. However, it can be very timely to get this done. And, there are no guarantees that it will be changed.
4. If you were to co-sign for a mortgage with someone, this can make you ineligible for some loan programs available today.
These are just a FEW of the ways that co-signing can impact you. Please talk with a financial advisor before co-signing with ANYONE on a loan. Make sure that you review the pros and the cons of every situation!
I am not saying that co-signing is bad. I am just letting you know how it COULD impact you.