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Hypothetical situation:

A dear friend or family member comes to you and asks you to co-sign for their loan. Let's say the reason they need the money is not a life-or-death type of situation. Perhaps they need something (a car, to get to a job) or want something (a kitchen renovation) – but we're not talking about a serious medical or other "emergency" issue. (I think co-signing then is a separate question.)

Anyway, let's say you'd rather not co-sign, since you know how co-signing for a loan can lead to problems for you down the road. (Refer to this question, and this question.)

What are some ways you could politely – but effectively – reject a friend or family member's request for you to co-sign for their loan?

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10 Answers

I'll take an alternate route: honesty + humor. Say something like this with a smile and a laugh, like you know they're crazy, but they maybe don't know it yet.

"Are you crazy? Co-signing a loan can put us both in a lot of potential danger. First, you shouldn't get a loan that you can't afford/attain on your own, and second, I'd be crazy to agree to be liable for a loan that someone else can't get on their own. You want something bad enough, you get your credit rating in order, or you save up the money - that's how I bought (my car/house/trip to Geneva). I'd be happy to point you in the right direction if you want to put a plan together."

You're offering help, but not the kind that puts you in danger. Declining to co-sign a loan can't damage your relationship with this person as much as failure to pay will.

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Ha ha - good answer! –  Nat_Rea Feb 21 '10 at 0:12
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"I really don't feel co-signing this loan is in the best interests of either of us. Lets talk about the amount of money you need and perhaps I can assist you in another way."

I would be honest and tell them it isn't a good deal for anybody, especially not me. I would then offer an alternative "loan" of some amount of money to help them get financing on their own.

The key here is the "loan" I offer is really a gift and should it ever be returned I would be floored and overjoyed. I wouldn't give more than I can afford to not have.

Part of why I'd be honest to spread the good word about responsible money handling. Co-signed loans (and many loans themselves) probably aren't good financial policy if not a life & death or emergency situation. If they get mad at me it won't matter too much because they are family and that won't change.

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+1 for honesty and sage advice –  Nat_Rea Feb 21 '10 at 0:12
    
+1 I like this because it is hones –  gyurisc Mar 2 '10 at 13:16
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I have been in this situation and I essentially went for the truthful answer.

I first explained that co-signing for a loan wasn't just vouching for the person, which I certainly would do, but it was putting my name on the loan and making me the person they loan company would go after if a payment was ever missed.

Then I explained that even within married couples, money can be a major source of strife and fights, it would be even worse for someone not quite as close like a family member or friend. Essentially I wouldn't want to risk my relationship with a good friend or family member over some financial matter.

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+1 I like this explanation –  gyurisc Mar 2 '10 at 13:16
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I'm going to be buying a house / car / home theater system in the next few months, and this loan would show up on my credit report and negatively impact my score, making me unable to get the financing that I'll need.

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That's a good one, too. Very reasonable. –  Nat_Rea Feb 21 '10 at 4:46
    
@Nat_Rea, Not if it's meant to deceive. –  Pacerier Nov 13 '13 at 4:20
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My reply would be a serious, "Oh my word! I was going to ask you the same thing!....guess that's a no from you". I'd turn it back to them and let them be confused and think..gee..I guess she's not that much better off than me. Awkward but that's what I'd say.

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Perfect. And no way for the other guy to argue the point. All other long answers risk hurt feelings. Friends in this situation don't want a lecture. –  JoeTaxpayer Jun 12 '10 at 14:03
    
@JoeTaxpayer, But if this is a lie, it will just complicate things sooner or later. –  Pacerier Nov 13 '13 at 4:20
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Oh, how about something like

"I'd rather not. It exposes me to more financial liability than I want. If you were in the hospital, or some emergency like that, it might be different, but..."

  • straightforward, honest
  • noncritical
  • disclaims personal obligation to underwrite their projects
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Simple and straight-forward. "I'm sorry but I don't co-sign loans. I've heard horror stories (or had bad experiences if you actually have) about these things going bad and ruining friendships. Your friendship is more important to me than you getting this car/stereo/whatever."

You could go on to explain that it's not necessarily a lack of trust in them, but the problem could be cause by things beyond either of your control. Let's say there's an error at the bank and his payment doesn't get processed on time and it hits your credit score. Next thing that happens is your credit card company sees the change in your score and jacks up the rate on your card.

Neither of you did anything wrong, but now instead of him just fighting with the bank about the payment not getting processed on time, you are having to fight with your credit card company. You are both in an awkward situation. You might get pissed at him (you could make this out to be a failing on your part) even though it wasn't his fault. Or he might be embarassed to come around even though you know it wasn't his fault and aren't pissed at him.

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This is a real difficult situation and I think the correct way to proceed here is to be honest and straightforward.

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'If i co-sign that makes me 100% liable if for any reason you can't or won't pay. Also this shows up on a credit report just like it's my debt. This limits the amount i can borrow for any reason. I don't want to take on your debt, that's your business and i don't want to make it mine'.

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"No, I don't mix business and personal affairs."

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protected by Chris W. Rea Jan 15 '13 at 15:33

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