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My roommate, who is also my best friend, needs a car. However, he
doesn't have any credit history, so he can't get a car loan on his own.
He asked me to cosign. I've heard horror stories about people who
got into trouble with cosigning, but he's my best friend. It will be all
right, won't it?
Cosigning can help a friend or relative in need, but it comes with risks.
Understanding what the risks are and why your friend needs a cosigner can
help you make an informed decision and not unnecessarily jeopardize your
financial future.
If your friend is late with payments or does not pay their debt, his actions
can lower your credit score when you're the cosigner. If the payments are
several months past due, you may begin getting phone calls from creditors
or a collection agency.
e creditor is under no obligation to try to collect from the primary
applicant before taking action against you. If he stops making payments, do
you have the money to pay the bill? If not, cosigning may not be a good idea.
Your friend does have alternatives, however. He can take some time to build
his credit. He should consider a secured credit card. e interest rate and
annual fee on a secured card are often a bit higher than on a regular card,
but a secured card offers the convenience of a regular credit card and, after
paying on time, can help to build or improve credit.
