Co-signing a loan, questions?

[bjl584]

It will effect your score slightly when they pull your credit for the loan application, and it will effect your debt to income ratio due to the fact that a new loan will be on your credit report that wasn't there before. this may make it more difficult for you to obtain financing for other purchases for yourself. Finally, if your friend is ever late on a payment, that will obviously effect your score.

[Like2Plan]

I agree with all of the other points previously made:
1. a ding to the credit rating for a hard pull
2. Debt-to-income ratio impacting other loans the OP may wish to make
3. a big hit if the payment is made late.
4. The possibility that the OP will have to pay the loan back (after the other person defaults)--and after much damage is done to the OP's credit rating.

One more thing that I discovered recently is the loan will figured into the OP's the debt-to-credit ratio (or credit utilization). I had always thought this particular value was calculated on revolving credit only, but found that equifax puts everything into it.

[Scanner]

I did a thread on this awhile ago and DisneySteve is giving the advice I would give based on what happened to this friend of mine.

Her son didn't make the payments and the car got repossessed before she even knew it was deliquent. Her credit score went from 700's to 500 almost immediately. In other words, she could default on the payments and you aren't even notified and you go down with the ship.

She was furious that the company didn't even contact her as the co-signor, but that's what happens - they just attack both credit scores.

So, I do think the best arrangement is that they write you 12 post-dated checks to you and you make the payments or some arrangement like that.

Good luck.

[PetMom]

Sure we can guffaw and elbow each other about the 'upside', but that also shows the human relationship of this money situation and it could landslide quickly.

People in debt who do/could/have had money problems and have a cosigner who they are in a relationship with where all you do is say 'bye' and its over is just risky for a cosign.

There is even some phrase of how borrowers resent the people they owe money. Even with good intentions she could lose her job, be demoted, get another unexpected debt (does she have a strong emergency fund?). Or she might pay and all would be fine.

Why does she need a cosign anyway and why not a parent or family member - which is typical - do so instead of you. Parents are far more forgiving when having to pay up for the defaulted loan. Many will tell of unpleasant cosigning experiences. It is your decision and money.

[MaxPowers]

I was another person that fell into this trap. I co signed with my ex wife. Of course at the time I felt there was no reason not to, what is mine is hers, but sure enough, bad times came and we got divorced. Within 3 months she was 7 days away from 90 days late, I had to bail her out and bring her up to date. Not to mention 2 consecutive non payments on my credit report. Then like 5 months later, she wrecked the car, surrendered it to the bank thinking she was now in the clear, because why should she pay for a car she doesn't have? She thought it wasn't fair. By the time I was contacted the account was charged off.

[MaxPowers]

Is it true about averaging the length of your accounts? I thought getting a year long loan and paying it all off usually will always help you. That would mean someone with accounts over 10 years will always get dinged for small loans. How does this work?