The Ugly Truth Behind Cosigning For Your Boo
Many young women and men run into this trap. You’re texting bae one day, and they want you to cosign a car. Maybe they want a new truck or to take out a loan to consolidate debt.
What a dilemma!
Of course, you want to make your boo happy. Signing a piece of paper seems like the least you could do, and it would be a gesture of goodwill, right?
While it may be true that your signature is quick and easy to do, the potential problems of cosigning for your boo may not only unravel your relationship but hinder your financial life significantly.
Here are four reasons you should never, ever cosign for your boo – no matter how good of a relationship you may have!
#1 You’re Liable
No matter what may happen to your relationship, you’re liable for the loan. If your girl/boyfriend skips out of town and refuses to pay, the bank will come after you to collect. Depending on how significant the amount of money is, it could impede your own life goals.
That home you’ve wanted….delayed! Now you have to clear off your ex-boo’s $20,000 car before you even think about saving for a down payment and buying a home.
If you’re liable for these payments in the future, that’s something you likely won’t be counting on in your budget and could cause significant financial strain.
You’re On The Loan Until It Ends
Once you cosign, you’re liable. You can’t decide that you no longer want to be responsible for the loan in the future and remove yourself. The only way you can do that is if bae and the bank agree to remove you.
Car loans, for example, can often be quite long. It’s not uncommon to have a loan for five years or more. To make that level of commitment is substantial and has the potential to backfire if your relationship heads south, especially if you still have to pay for the car after they left you.
#2 Your Debt-to-Income Ratio Goes Up
If you’re looking at buying a home, car, or even get a credit card, lenders consider your debt-to-income ratio. That metric is the amount of money you must pay each month divided by the money you earn. If your minimum payments on your credit cards total $500, and you pocket $1,000 each month in pay, then your debt-to-income ratio is 50%.
Increasing your debt-to-income ratio has potentially disastrous consequences for loan and mortgage applications. So with that extra loan payment on your report, your debt-to-income ratio becomes less desirable.
#3 It Will Go On Your Credit Report
If, when you cosign, you or your bae make all payments correctly, then the loan should have minimal impact on your credit report (except for an initial hit when the bank opens it). However, if you run into trouble and the loan doesn’t get paid, you’ll see it show up on your report.
Having a missed payment can lower your score by as much as 100 points. That 800 point credit score you worked so hard to obtain? If you or your girl/boyfriend don’t make the payment, you could be looking at a 700 point score seemingly overnight.
#4 It’s Not Worth It
Cosigning is not worth it. Your bae may ask you to cosign, and you might want to, but there’s so much risk associated with it. You could face significant financial problems for years. That’s the ugly truth.
Protect yourself and your finances first. Refuse to cosign for any loans that you do not want yourself, as well.