Should You Co-Sign on a Loan?

Many times when one has a limited history of credit, the lender will ask the borrower if he or she could secure a co-signer for the loan. This is a person who will share the risk.

When you co-sign on a loan, that obligation can also appear on your credit report and be figured in to your debt-to- income ratio.

Before you sign on that dotted line with someone else, consider these two stories told to me by my customers:

CASE ONE A long-haul truck driver had perfect credit for over twenty years. His son, in his early twenties, wanted to buy a pickup truck and a motorcycle. Sure, Ill sign with you, Dad said. The truck driver would call his son from the road. Are you making those payments? Sure, the son said. He lied.

Before long the father received a call from the attorney at the dealership. Apparently the son had not made a payment on either vehicle for over six months.

Settling the sons case of delinquent payments drove the father into bankruptcy.

Several months after the bankruptcy, the father went to purchase a pickup truck of his own. The salesperson told him, We can finance you, but because of your credit history, the rate will be high.

My customer told me, Right then and there I felt like kissing his feet. Everywhere else I had gone they took one look at my record, then treated me like dirt.

I later told my son, Son, Ill always love you, but dont ever do that to me again!

CASE TWO

After years of searching, a young man finally found that special girl he wanted to make his wife. So he and his buddy went shopping for the perfect (meaning expensive) diamond engagement ring.

Because he didnt yet have credit established, he asked his buddy to sign with him when they found it at a jewelry store.

The young man then took the dazzling, sparkling ring to his potential bride-to-be.

Will you marry me? he proposed.

No! she replied.

No? That response was not part of his plan.

The young (and stupid) man was so upset that he flung the ring. It was never to be found.

Further, because the young man had neither the girl nor the ring, he didnt understand why he should have to pay for either.

Guess who had to make the monthly payments on the diamond ring?

If you guess the young mans buddy, you are wrong. You see, in the buddys household, it is his wife who pays the bills.

So, the buddys wife told me, Im paying for that diamond engagement ring that I never received when he proposed.

Moral of both stories: You must pay if your family member or friend doesnt when you co-sign on a loan. (And sometimes pay and pay and pay.)

From the book Kickback: Confessions of a Mortgage Salesman, one of the best-selling mortgage books on Amazon.com. Experienced mortgage broker, creator of one of the most informative home-buying educational seminars in America and author, Ted Janusz educates first-time home buyers and seasoned real estate professionals on the Top 10 Mistakes people make when obtaining a mortgage. For more information, please visit his website at http://www.januspresentations.com/ You may also email Ted at tjanusz@gmail.com.

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