Co-Signing a Loan

By Deborah Nayrocker

Dear Deborah: My daughter wants to buy a car and have me co-sign for it. She has a job and shares an apartment with her friend. I want to help her out, but I’m not sure if this is the way to do it. – A Reader

Answer: It has been said that a co-signer is best defined as a saint, an idiot, or a parent. A co-signer for an application is needed when an applicant is unable to get a credit card, apartment lease, or auto loan based solely on the borrower’s credit.

A person who co-signs the document is not ‘just’ a co-signer. Every person who signs is 100% responsible for the loan, regardless of who signs first. The payment history shows up on the credit record of both signers.

Co-signers are obligated to make the payments whether they are the borrowers or not. In fact, they are liable for every dollar of the debt they sign for.

Concerning signing for others loans, Proverbs 17:18 says, “It is poor judgment to countersign another’s note, to become responsible for his debts.” (Living Bible)

In many states, lenders do not need to notify the co-signers when a borrower falls behind on loan payments or exceeds the credit limit. Consequently, co-signers can be liable for late payments as well as penalties without being aware there ever was a problem. They may even be expected to pay immediately in cash.

So, if you don’t want to be responsible for a payment, don’t co-sign.

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Deborah Nayrocker is an author and columnist. She is the award-winning author of The Art of Debt-Free Living and Living a Balanced Financial Life.

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