Yes, Your Credit is at Risk.

If someone asks you to co-sign for them on an auto loan, think long and hard about it. By choosing to be the co-applicant, also called co-signor or co-owner, you are just as responsible for the loan payments as the other person is. Even worse: You have your good credit to lose.

I have seen it a thousand times. The person with bad credit has their friend with good credit co-sign on the auto loan. The plea usually sounds something like this “I promise I will make all the payments on time. You have nothing to worry about.”

Six months later, the loan is in default, and the good credit signor’s credit score is 100 points lower.

If the loan goes into repossession status, the formerly good credit signer now has a repossession on their credit even though the other person is the one that did not pay.

Be Careful with Your Credit

If you have good credit, do not take it for granted. I do not care if it was my own child. I would not co-sign for ANYBODY. I have seen it go wrong too many times. If possible, lend the person with poor credit some money for down payment…better yet, give them the money as a gift. It is far better to lose $2000-$3000 to help someone close to you buy a car than it is to risk your good credit.

Think about it, if you do not expect money back from that person you will have no animosity between the two of you. If you cosigned on a loan, and that loan went bad, no you are going to hold the negative marks they put on your credit against them for years. It takes 7-10 years for bad things to fall off your credit.