Co-Sign a loan: the advantages and disadvantages

Co-signatures are common practice in the area of loans. In fact, it is a way for someone with a good credit history to help someone in financial difficulty. This practice is more common among family members or friends because it requires a good relationship and a lot of mutual trusts.

Opinions about the benefits of a co-signature are shared. The reason is simple: people do not know what a co-signature implies. As with any financial decision, knowing the benefits and risks is the best way to make an informed decision. These are the good and bad sides of co-signing:

What does it mean to “co-sign”?

What does it mean to "co-sign" loa?


Briefly, co-signing is tantamount to helping another person who can not get a loan to get one. You put your name and credit history in someone else’s loan, making you responsible for their loan as if it were yours. Sometimes, because of a bad financial history, some people can not get a loan. Thus, a viable client uses his “good” credit history to help a family member or friend get the necessary loan.



  1. You help a friend or family member get a loan

There are many reasons to apply for an Echos Du-limousin loan: tuition fees, domestic expenses, etc. For some people who can not have a loan, the options are very limited. Being denied the credit application is common for people with a difficult financial history. On the other hand, a co-signer could help them change the situation. For example, a co-signature could allow a person to go to university, buy a safe car or move to a better place.

  1. Improves the credit history of both signatories

In order to improve your credit history, you must obtain a credit. This, on the other hand, can be difficult for people with a difficult financial history. As a result, a co-signer with a good financial history can help another person obtain credit or improve their credit history.

Moreover, as the co-signer has the same status as the signatory, he will also benefit from this loan by seeing his credit score improve if payments are made on time.

  1. Better interest rates

People with a bad credit history have to pay higher interest rates because they are risky claimants in the eyes of creditors. However, if these people manage to convince a co-signer, they can benefit from the credit history of the latter and get a better interest rate.

  1. Avoid profiteering creditors

By having a co-signer, you could avoid some creditors who only want to take advantage of your bad financial situation. These types of creditors choose vulnerable people to take advantage of them without, for example, explaining the dangers of another loan or notifying them of high-interest rates. A co-signer will allow you to do business with an honest creditor and have better interest rates.

The disadvantages

  1. You will not get a material reward

This is perhaps the main reason why volunteering as a co-signer can be a bad idea. You will not receive any material benefits. You could not drive the purchased car with the credit, but you will be responsible for the payments. If the person you co-sign cannot pay his debt, it will be up to you to take the torch and pay from your pocket.

  1. You are responsible for the loan

If you co-sign a loan for someone, it means that you are the main reason why this person gets a loan. Your good credit score and your credit history have allowed your friends or family member with bad credit and a difficult credit history to get a loan.

If the person stops making payments, you will be legally responsible for paying the debt.

  1. You may be refused for a future loan

By co-signing a loan today, you could jeopardize your chances of getting a loan in the future. Think of your future well before co-signing a loan. You think you will not need it soon but think about it. You do not want to see your application rejected once the need arises.

  1. You will have to make payments

Prepare to make payments no matter the situation. Since you have taken on the responsibility of being a co-signer, you must protect yourself and your credit history. Set aside a certain amount in the event of a default by the principal applicant. Be ready for the worst.

  1. You will have to watch the payments

Even if your friend or family member promises to make the payments, you still have to watch them. Simply trusting the person and not monitoring the repayment process is not an option. Treat this credit as another monthly bill, be organized and handle the situation.

Wanting to help a family member or friend is never a bad idea, but think about the potential consequences. Depending on the situation, the benefits may outweigh the disadvantages, but it can also be the opposite. The best solution is for both people to understand what a co-signature entails. This way, when the opportunity arises, you will be able to make the right choice.

Continue Reading