Consider The Pros And Cons Of Being A Co-Signer

No one willingly wants to become a co signer of an auto loan.  The one you are co signing the loan with either is pretty low on cash or bad credit: it is the biggest obstacle between buying a new car. Say a family member has a less than perfect past with responsibility. But now, after years of dedication and hard work, h has finally managed to finally settle down. But since his credit history is not so good, he is really counting on you to be a co signer for the car loan.

The first thing you want to do is agree to be the co-signer but you should understand that your own credit is at potential risk. Therefore before making any further commitment, you must weigh the advantages and the disadvantages of doing so and we all know there are more cons than pro in this arrangement.

When you sign the loan, it becomes your responsibility to pay off the loan in case the other co-signer defaults.  You might become responsible for paying off the total amount of debt along with all the late fees and collection costs.

There is also the risk of damaging personal relations when you have a close friend or a relative as a co-signer.  Money has always been a very sensitive issue always. Say your friend is unable to pay the loan and you end up paying the entire amount – how many times will you tell your friend to pay up if he happens to be short of cash?

Say, you want to buy a car of your own at some point. Creditor will consider the co-signed loan as one of your financial obligations thereby limiting the amount of possibility of getting some good loan for your car.

One major drawback of being a co signer in an auto loan is that if the loan goes into complete default, and you do not have the financial resources to pay off the debt, you too can end up in huge debt. This could cause disaster to your own credit.

Now it’s time to see the bright side of being a co-signer of the loan.

If you have bad credit and you get a co-signer, it will give you access to financial opportunities that you would not have got all on your own.  His good credit score will stand in for your poor credit score. With a bad credit the lender might not trust you to pay back a debt but when you have a co-signer with great credit scores, the lender has much  greater assurance that the loan will be repaid. 

Getting a co-signer will help you build your own credit scores. Young professionals have below average scores. But with a co-signer and making full payments on time over the years could boost the low credit scores for higher ratings.

So, considering all the above points, before you agree to be a co-signer for someone taking an auto loan, keep in mind what all risks you might have to endure. Get an approximate idea of how much you have to shell out as a co-signer with the help of a car finance calculator. Good Luck!