Pros of Co-Signing a Loan
- Help a Loved One: Enables a friend or family member to secure a loan they might not qualify for on their own.
- Builds Credit for the Borrower: Helps the primary borrower establish or improve their credit score.
- Potential Relationship Benefits: Demonstrates trust and support, which can strengthen personal relationships.
- Possible Favor Return: If managed well, it could lead to reciprocation in future financial matters.
Cons of Co-Signing a Loan
- Shared Responsibility: You’re legally responsible for the debt if the primary borrower defaults.
- Credit Risk: Missed payments or defaults can negatively impact your credit score.
- Debt-to-Income Ratio: The co-signed loan adds to your debt, which can impact your ability to take out other loans.
- Limited Control: You have no control over how the primary borrower manages the loan.
- Strained Relationships: If issues arise, it could lead to tension or conflict in your relationship.
- Potential Legal Consequences: You could be sued if the loan goes into default and the lender decides to take legal action.