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Does it cost me anything if I co-sign a loan for someone?

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Only if (or to put it even more bluntly, when) they default.

If your friend / brother / daughter / whoever needs a cosigner on a loan, it means that people whose job it is to figure out whether or not that loan is a good idea have decided that it isn't. By co-signing, you're saying that you think you know better than the professionals.

If / when the borrower defaults, the lender won't pursue them for the loan if you can pay it. You're just as responsible for the loan payments as the original borrower, and given that you were a useful co-signer, probably much more likely to be able to come up with the money. The lender has no reason to go after the original borrower, and won't. If you can't pay, the lender comes after both of you.

To put it another way: Don't think of cosigning as helping them get a loan. Think of it as taking out a loan and re-loaning it to them.

  • 5
    +1, excellent answer. I especially like "Think of it as taking out a loan and re-loaning it to them." – Chris W. Rea Feb 14 '10 at 13:55
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    Great answer. My advice is to never co-sign a loan unless you would comfortably loan the money directly to the person from your own coffers. – JohnFx Feb 14 '10 at 20:53
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    Really good comment! I like how you say that by co-signing you're saying you think you know better than the professionals! It's important to understand that aspect and that they are completely liable for the loan! – Rachel Feb 16 '10 at 15:30
  • I understand from the answer that co-signing is considered a "must" ? That's probably particular to certain cases, but I'm familiar with situations in which the co-signing was optional. That's when the risk is moderate - the bank would be willing to take it on, but at a price. With a co-signer, the interest would be lower. – MSalters Apr 18 '11 at 13:39

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