It can be a financial land mine. / Photodisc/Getty Images
You should be willing to do most anything to help a friend — except co-sign a loan. Here’s why co-signing is a financial land mine:
You may be on the hook. Someone needs a co-signer because a lender isn’t completely comfortable with that person’s finances. If your friend gets sick, dies, loses a job or is otherwise unable to pay back the loan, the lender may look to you to pay up. That can get nasty, and it can include filing a collection suit against you.
It may hurt your credit. Late payments, repossessions or collections can show up on your credit report in addition to your friend’s. Those black marks can stay on your report for as long as seven years.
It can hurt down the line. “Even if the debt is being paid on time, it would be included in the co-signer’s debt-to-income numbers if he or she is applying for a loan or refinance,” says attorney Clarke Balcom of Portland, Ore.