Wednesday, August 26, 2015

To Co-sign or Not to Co-sign

The fall semester's tuition payment is due this month. Many students must take out student loans to make that payment. Most take advantage of having a co-signer on their loan as it allows them to be approved for the loan or to qualify for a lower interest rate.

You may feel obligated to co-sign or just magnanimous but there are a few risks involved for you as the co-signer:

1. It may limit your access to other forms of credit as this loan increases your debt ratio.

2. You may incur higher interest rates on future borrowing as the student loan is considered part of your debt obligation.

3. It is very difficult to remove a co-signer from the loan.

4. It may change your relationship with this person as now they will feel obligated to you or you may find yourself nagging him/her about payments.

5. Upon graduation, if the student does not find gainful employment or decides to ignore paying, you could be totally responsible for this debt.

These reasons hold true for car loans, boat loans and credit cards.

Be $ Smart - protect your credit worthiness, know the risks before co-signing a loan.