The Stupidest Thing I've Ever Done With My Money
I paid for a car I didn't own
Rain ran down the back of my neck as I tripped along the sidewalk, cursing the high heels I’d chosen to wear that day. My numb fingers fumbled with my keys, managing to unlock the door. I could hear the phone ringing and paused to listen as the machine picked up.
“Hey, it’s me, I think we need to get some wheels.” It was my best friend, and they were asking for help.
In my twenties, I made the mistake of co-signing a car loan for a friend. At first, it was a great arrangement. They would pick me up every day and drive me to work. In exchange, I was willing to put my credit score on the line.
A year later, they left town with the car.
The bank held me responsible since I was the easiest person to find. I didn’t even have my driver’s license!
If you’re asked to cosign a loan, ask a few questions before you jump off the cliff.
Why does the borrower need a co-signer?
Here are some possible answers:
They have a poor credit history.
They already have too much debt.
They are trying to consolidate debt into one loan. Maybe they’re trying to get back on track.
The bank wants a cosigner because they haven’t made payments on time in the past.
They can’t get a loan any other way.
If the bank doesn’t feel safe lending the person money, why should you?
You are allowed to say No. You are allowed to protect your credit.
What does consigning mean?
When you cosign a loan, you take full responsibility for the full amount of the debt, even though the loan is in the other person’s name.
When things go wrong, you may assume the bank will try to collect from the main borrower before they come after you. That’s not always the case. Cosigning doesn’t make you the payer-of-last-resort. Often the bank will come after you first, especially if you are the easiest person to find, and especially if you’re the one who has a job.
If the borrower doesn’t make their payments on time, your credit rating/score will suffer. That will affect your ability to borrow money in the future.
If the person is a loved one, it will be difficult, but if you can’t afford to pay off the loan, just say no!
There are some situations where you feel you must cosign. You might be married or in a committed relationship. Your adult son or daughter might need your help. A good friend may ask you and you can’t refuse.
If so, go in with your eyes wide open. Be sure your name is on the title of the asset that is being offered as collateral and be fully prepared to pay the loan yourself.
Remember, no one else cares about your money as much as you do.
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I’m curious:
Have you ever co-signed a loan and why?
How did that work out for you?
If you had a nothing box, what would you do with it?
When would you consider putting your credit score on the line for someone else?
Drop your answer in the comments below.