I received an e mail last week from a lady that was in a desperate situation. She had co-signed a student loan for a relative and had recently been notified that she must begin making a monthly payment of nearly $800 (since the student had defaulted). This is money she simply doesn’t have. While she thought she was doing a good deed helping a young person to obtain financing to go to college, she is now on the hook for nearly $10,000 per year in debt payments for the foreseeable future.
“A person devoid of understanding shakes hands in a pledge and co-signs for a friend.” (Prov. 17:18)
I regularly receive e mails from people wondering about whether or not they should co-sign to help out a loved one or a friend. This can be for a student loan, auto loan, a mortgage, or even a credit card. While I was working in the mortgage business several years ago, it became apparent how little people understood about the financial and legal ramifications of co-signing.
On numerous occasions I had to inform a client that their loan had been turned down due to a loan they had co-signed. In some cases, the loan was not being paid on time and it had destroyed their credit. In other cases, the addition of another monthly obligation caused their debts to represent too high of a percentage of their income for an approval. They all seemed to be in a state of disbelief saying, “but it is not really my debt…” Unfortunately, lenders do not see it that way. Continue reading ‘5 Dangers of Co-Signing a Loan’ »