Borrows getting burned by Co-Signing Loans

[bjl584]

http://www.cnbc.com/2016/06/06/loan-co-signers-often-get-burned-by-the-experience.html

[disneysteve]

I think a great many people simply don't comprehend what co-signing means. They just don't understand that essentially they are the ones taking out the loan and they are 100% responsible for that loan if the other person doesn't pay it. They think they're just doing someone a favor - and then they get screwed.

[bjl584]

I think a great many people simply don't comprehend what co-signing means. They just don't understand that essentially they are the ones taking out the loan and they are 100% responsible for that loan if the other person doesn't pay it. They think they're just doing someone a favor - and then they get screwed.

I remember watching Suze Orman a few years back. A girl called in. Her now Ex-boyfriend convinced her to cosign his student loans. He got an undergrad degree then a Master's degree. Then he broke up with her and split. She was now saddled with paying close to $100K of SL debt that wasn't even hers. Suze basically told her that she was S.O.L. and would have no choice but to pay it back.

[disneysteve]

Suze basically told her that she was S.O.L. and would have no choice but to pay it back.

Yep. There is nothing you can do if you signed up for the loan. It's your responsibility. The lender can come after you just the same as they go after the other person who is on the loan.

[bjl584]

Yep. There is nothing you can do if you signed up for the loan. It's your responsibility. The lender can come after you just the same as they go after the other person who is on the loan.

And in this girl's case, bankruptcy wasn't even an option since it was student loan debt.

[disneysteve]

Her now Ex-boyfriend convinced her to cosign his student loans.

I can understand a parent co-signing for a child. My parents co-signed my loans and, if necessary, I will co-sign for our daughter. But I have no idea what people are thinking when they co-sign for a friend, a coworker, boyfriend, girlfriend, etc.

[creditcardfree]

I was trying to explain this to my 20 year old niece who has an apartment with a friend. They signed a 12 months lease, but she wanted off because she was moving out seven months early. Landlord wouldn't release her. She was going to move anyway and figured she wouldn't be liable. Um...no, she could be liable for all the rent if the friend doesn't pay the full amount.

I told her to at least check with property manager each month to see that the rent was paid in full. If not, she needs to be aware that she could have to pay.

Oh, and my niece had loan this friend about $500 and had not been paid back yet. That is a bad sign!

[disneysteve]

I was trying to explain this to my 20 year old niece who has an apartment with a friend. They signed a 12 months lease, but she wanted off because she was moving out seven months early. Landlord wouldn't release her. She was going to move anyway and figured she wouldn't be liable.

I think they need to have a mandatory lesson in school at some point on what it means to sign a legally binding contract.

[pflyers85]

What is sad is that so many are just afraid to say no to a friend or family member that is asking their permission to cosign. They say yes because they are afraid of straining their relationship with that person. The problem with that line of thinking is that if the person they cosigned for does not make good on the loan (high probability given the fact that a lender needs someone creditworthy on the hook) their relationship will likely be broken beyond repair anyway.

As DS said, some feel like they are doing their friend or family member a favor. Cosigning is not simply vouching for someones character. It is binding your name and your credit to the loan. The only scenario I could see myself cosigning would be if I had a child that was responsible (employed with minimal to no other debts) but simply lacked the credit history to justify a particular loan. Even at that I would only do it if I could financially handle the worst case scenario.