A lot of people assume that a cosigner is like being a character reference, but this assumption is untrue. A cosigner is a third party who guarantees that the person for whom they are cosigning will repay the debt on-time and in-full. A cosigner is contractually obligated to repay the debt if the person they cosigned for fails to pay. As a cosigner, you are as responsible for the debt as the person for whom you cosigned.

In a worst-case scenario situation, if a car you co-sign on is repossessed for lack of payments or failure to have appropriate insurance, you can be sued for any outstanding balance on the car, and a judgment will be entered against you. Your wages can be garnished, your bank account emptied, and your credit score tanked, causing your other credit cards to increase interest rates or lower your available limit. 

So, before you co-sign, you need to think about the following questions:

  1. Do I trust that the person will make the payments on time until the loan is paid off?
  2. Will I be able to make payments if they can’t?
  3. Do I want to be responsible for any outstanding balance if the car is repossessed?
  4. Can I handle a “ding” on my credit report if they don’t make the payments?
  5. Do I want to be a Defendant in a lawsuit if they default on the loan?

If the answer is no to any of these questions, then you should not cosign. It may be an awkward conversation to have now, but your relationship with the person will be much worse if you end up paying off a car that you didn’t even own.

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