What are the pros and cons of cosigning a car loan for someone else?
My boyfriend has asked me to cosign his car loan. What are the pros and cons of doing so?
Being asked to cosign a loan is in some ways a compliment. It says, “I need your stability, reliability, and consistency to help me get a loan for something I need.”
The more tangible benefit is that you are helping someone you care about get credit that they can then use to build up their own creditworthiness. For this reason, the most common cosigners of auto loans are parents or grandparents who are helping out their young adult children or grandchildren.
Unfortunately, that is all the cosigner generally gets for taking on this risk. The cons of cosigning include:
- Having your credit checked. Even good credit gets dinged by a credit check, and when the loan is approved it may get dinged again because you’ve taken on more debt!
- Risking that you will have to assume payments on the loan for which you cosigned, because the borrower you cosigned for is unable to pay.
- Damaging your credit if the borrower fails to pay the loan and you are unable to pick up the payments.
- Straining the relationship between the cosigner and borrower if the borrower has trouble paying back the loan.
Cosigning an auto loan is a big decision and should be taken seriously. If there is any doubt about whether it makes sense for you, consider if there are other ways to help the person asking you to cosign.
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