If a friend or family member has approached you about cosigning a student loan, you may be tempted to accept without hesitation. While it’s great to help a loved one out, you should give it some thought before jumping right in. Cosigning a student loan – or, really, any loan in general – has more implications than you might realize. Before you sign on the dotted line, take some time to understand the possible consequences.
What does it mean to cosign a loan?
Cosigning a loan is just as it sounds. Essentially, it means that you are signing on the loan in addition to the primary borrower. If you have strong credit, having you as a cosigner on the loan can help borrowers obtain a loan that they wouldn’t qualify for alone.
However, cosigning a loan doesn’t just mean that you help someone get a loan and that’s it. There are a lot of responsibilities that go along with being a cosigner. These are important to fully understand before you sign so you know exactly what you may be getting into.
In this situation, cosigning a student loan means that:
- This loan will also show up on your credit.
Because you’ve cosigned the loan, it will also appear as debt on your credit reports. This means that if the other person misses a payment, it’ll ding your credit, as well as theirs.
- You are equally responsible to pay the loan.
This loan is just as much yours as it is your friend’s or family member’s. If a payment is missed, you’ll either have to be okay with it damaging your credit, or cover the cost yourself.
- Your credit could be negatively impacted.
Any kind of bad behavior from the other person (such as making late payments or missing them altogether) will damage your credit. As much as you trust them, make sure you fully understand their ability to repay the loan before you cosign, or your credit could be impacted.
- The loan is equally yours.
As soon as you sign, this loan is equally your responsibility. You can’t just leave the loan with the other person if you don’t want to be on it anymore. (There are exceptions – such as your friend or family member refinancing the loan in their name alone.) But, in general, you need to be prepared to be held responsible for this loan in the event that something goes wrong.