Why you shouldn’t cosign anything for a friend or relative.

My 20 year old sister called me last Monday and asked if I had enough credit to co-sign a loan (I do) for somebody (her of course) and my first response was a perfectly enunciated big fat NO.

Why won’t I help my sister out you ask?

I understand that she isn’t at the point financially where I am and that it does take a while to go from being just your average American twenty-something to someone whose stance on debt is such as mine: Debt is bad and must be avoided at all cost or suffer the revenge of the Sith.. no wait that’s a movie.

Gotta love Star Wars

Alright alright, back to the money. I said no to my sisters request and so should you if your friend or your co-worker or a family member asks. Do you really want to be responsible for their debt? Say, they’re buying a $5,000 car. Would you go out today and buy a $5,000 car and give it to them? Most likely not, however if you co-sign for a loan such as a car-loan if they don’t pay it… you’re on the hook.

Many people in my community don’t understand this basic fact, they say ‘Oh the bank just needed my income to give the loan to her, it’s in her name!’ No, no it’s not! Her name might be second on the title to the car (after the banks’ claim), but guess what, you’re next in line – you’re on the hook for that debt!

I don’t lend money to co-workers, employees, family members, friends or strangers. I feel so strongly about this that I’ve said ‘hell no over my dead body’ to a $20 request. See, I loaned $500 to a friend once who desperately needed it. I got the money back including interest within the month but I would never do it again. As soon as the money changes hands your relationship changes, you upset the balance of the relationship because now they owe you something and if something happens or for some reason that loan doesn’t get repaid that relationship is forever unbalanced.  And no, don’t say it won’t happen to you. I’m still friends with this person because we each upheld our end of the bargain, but you know what? To this day we have never discussed it again. It’s not a pretty memory to either of us, it’s uncomfortable.

Just don’t do it.

Have you loaned money to someone before, did it work out, do you think I’m dead wrong?

Published by Renée

I write about my life, travel and my financial up and downs on my blog, Nickel By Nickel, while contradicting myself daily. ;)

33 thoughts on “Why you shouldn’t cosign anything for a friend or relative.

  1. I helped my mom buy a house. I provided the good credit and down payment and she provided the remainder of the money when her other house sold. I would definitely not recommend doing this – our relationship is forever changed.


  2. I would not have loaned her money either. If she couldn’t afford it on her own, she shouldn’t have been buying it. Also, if it was because her credit was bad, that should be a huge red flag. Get a cheaper car, or get better credit!


  3. I learned my lesson when I was younger ( about 19) and loanded not only friends but a ex-bf an amount. It was nothing huge ( probably about $120 total) but it wasn’t even for anything good. I thought I would get the money back and I never did. I never loan anyone money because it makes me feel like crap. I also am weird, because if I loan them money and they haven’t paid me back, yet I see them doing all sorts of stupid crap with their money, I get pissed, like, why haven’t they paid me back! blah blah blah. I just choose not to do it anymore unless it’s one of my best friends ( M and W) and have a good reason, will pay me back within a good time frame, etc.


    1. Same here! I see the bickering between my sisters when one loans the other money – then gets all in a huff that they haven’t been paid back while the other one is out partying… lol. I’ll save myself the high bloodpressure.


  4. I 100% agree with this. I will be forever grateful that my dad did cosign a car loan for me when I was 18, but I did pay for the whole thing and early. He just got lucky. It seems these things rarely end well. My poor kids, no cosign for you!


    1. Second that, no cosigning for my future kids. But it will be different for them… they’ll be raised by parents who know how to do the right thing with their money so if we’re lucky, they’ll know it’s stupid and won’t bother asking.


  5. I co-signed for a care loan for my wife’s cousin about 10 years ago…luckily the loan was paid off right when we were looking to build out house. if not, we probably wouldn’t have been able to get our home loan because of the cosign.


  6. My dad (against his better judgment) cosigned for a private student loan for me in 2004. That I used to pay off credit card debt before charging the credit cards back up. I’m still paying off that stupid loan, and my parents’ ability to borrow is compromised if they ever needed a loan. Will never again ask ANYONE to cosign for anything, and I sure wouldn’t put myself in that position.


  7. The nugget of wisdom my parents gave me is to be prepared to deal with never being paid back, and if you would miss the money/would hate that person forever, don’t do it. It’s my policy now =)


  8. I agree that you should never loan money or cosign. That said; I’ve done it and had bad experiences and done it and had good experiences. well… one good experience. 6 years ago my husband and I took out a loan for my MIL’s car. The loan was 100% in our name, we didn’t cosign, she gave us access to her checking account online and we took the money every month on the same day and paid the loan. That way I didn’t have to worry about if she was making the payment. Also, the car was registered in our name. That way if she stopped paying we could sell the car. When she paid off the loan we “sold” her the car and she registered it in her own name.

    That was the only time loaning/cosigning has worked out for me.


  9. Totally changes the relationship. Loaned money to SIL 2x, to the tune of $1k total (the 2nd time I fought my husband hard but caved – I don’t have siblings so don’t understand that bond, bah blah). We didn’t bug too hard about repayment, but the relationship did change – we never saw her anymore. So the 3rd time (‘cuz there’s always a next time), we said no, and we’ve not heard from her since. Boo.


  10. Definitely agree. As much as you want to help them, the fact that you will be responsible for the debt in case they can’t make the payment hurts. In addition, your credit score will suffer as well and the relationship between the two of you will take a hit as well.


  11. I have definitely had bad experiences. With one friend in particular who never pays me back. So I stopped dealing with her in that capacity. Other friends however have been great. I am not saying I go around handing out cash, but I have for instance bought play tickets for a group and everyone reimbursed me. As for the cosigning I am not sure if I would or not, but I am 99% that I would not.


    1. Hmmm I hadn’t considered the tickets/reimbursements, this happens in our group all the time. We’ll head out for a girls night and one will have bought a ticket and I’ll write her a cheque when she gives me the ticket. I had never considered this borrowing however… I suppose it is though. For my group it’s mostly convenience… when we’ve all confirmed in the afternoon one gal will go out a bit earlier and grab the tix and as we all arrive we get out tickets in exchange for cash.


  12. My mom has co-signed for me but I’ve never given her an indication that I won’t pay my debt. I really appreciated it and it has never lead to me taking her for granted. Her willingness to help has been an insurance policy for me and I feel a great responsibility to her.


  13. Well, I think I’ll be the loan dissenter here! I co-signed for my younger bro’s first car-loan. (I also have confidence he’d pay the car loan no issues, which he did). From time to time, I’ve loaned close friends what they needed to make it through something. To me, I have been blessed with a good income and investments that did well, and I like to be able to help out people with that good fortune within certain boundaries.


    1. I also enjoy helping people through giving and charity, but in the end I would prefer giving over loaning. Thanks for your comment, we can’t all be the same – it’d be a pretty boring world.


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  15. To be honest this is my third time visiting Why you shouldn’t cosign anything for a friend or relative. Nickel By Nickel today and finally decided to leave a comment. Great info and I love the theme. Keep it up!


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