Is Cosigning For A Loan Ever A Good Idea?

An internet search of the term “cosigning a loan” quickly reveals it’s a terrible idea. And there are valid reasons for much of the negativity. Helping a family member or a friend by cosigning a loan is incredibly helpful for them, but significant problems arise for a cosigner when they don’t know or understand what they agreed to.

Many people cosign without understanding how the loan may impact their own finances. And worse yet, some people aren’t fully prepared to pay the loan back if the primary borrower quits paying.

There are some valid reasons to consider cosigning some types of loans. And plenty of people cosign loans without running into problems. Let’s take a look at what exactly cosigning means and the impact it can have on your own finances. Then we’ll discuss when cosigning makes sense and when to avoid it at all costs.

What is Cosigning and Who Needs a Cosigner?

People need loan cosigners for a variety of reasons. Having a low income, lacking a credit history, or having a poor credit history (late payments or defaulting on payments) are all reasons lending institutions deny people loans. Individuals in these situations may qualify for loans if they can find a cosigner meeting the requirements of the lender.