Its a good favor you do to a friend or a family member when you agree to become a co-signer in their loan or liability. It’s hard to say ‘No’ to a good friend or it may sound harsh when someone is in need, especially when a person who does not have any credit history of his/her own ( your kids or a new friend in country). But before you sign the documents, do understand the implications of this decision.

Following are few reasons to ponder before opting as a co-signer:

You (too) are responsible for loan payment:

As a co-signer it is your responsibility to repay the entire loan amount in case the first applicant fails to pay.

May have legal implications:

In addition to point 1. in case of default by primary applicant, you may need to face legal implication even though you have not taken the loan. It does not matter whether the loan is car loan or student loan, you as a co-signer responsible for timely payment.

Can affect your credit score:

By co-signing a loan you are putting your own credit score to qualify someone else for the loan. In simple words, its your credit which is in agreement/line and you have worked hard for years to build it. Therefore, think before you act.

Risky, still not be rewarding:

Even after taking the responsibility as a co-signer it would be not much rewarding in future. In case of a missed or skipped payment your credit score going to get affected. This not only going to reduce your chances to qualify for low rates but also for good financing options in future. Your co-signed loan will always be considered as an obligation and lender will count it as another debt.

Can ruin relationships:

One single missed loan repayment can have great impact on your finances, credit score and ultimately can lead to sour relationships. It always better to keep emotions away when it’s a matter of money.

Removing yourself as a co-singer wont be easy:

The loan provider will not remove your name as a co-signer unless the primary borrower can handle the loan on his own or the loan is completely paid off. But if that could happen at first place then you would never have been asked to assist as a co-signer. There are ways to remove yourself as co-signer but it’s hard to get the release.

Co-signing is as good as a promise to pay someones loan if they are not able to do so. In few situations like death, disablement or job loss of the primary borrower can put you in financial burden.

There are few helpful ways to help your friend or family members instead of co-signing like helping with some funds or by lending some money yourself. If that doesn’t workout and you agree to co-sign anyway, then make sure few things:

-Your name is on the deed of purchase or in title.

-Know about your rights and responsibilities as co-signer.

-Keep open and clear communication between you and primary borrower.

-Be upfront and know how primary borrower planning to repay the loan.

-Also check primary borrowers ability, financial condition to repay the loan.

-Plan for the situations like missed payments or in case of default.

-Keep a check on your credit score for smooth transactions.

Bottom line is- Wait and think before you co-sign. This decision may going to have a huge impact on your financial health and creditworthiness.