Cosigning is one of the most dangerous and yet often necessary arenas in finance and law. In this article we’ll talk about what cosigning is, the dangers of cosigning, and then talk about how you can find a cosigner for your own financial situation.
Cosigning is essentially when someone agrees to pay a loan for someone else if payments are being missed. In other words, let’s say a young man wants to buy a car, but doesn’t have enough credit for the banks to trust him with consistent car payments.
No problem — all the young man has to do is to get someone with acceptable credit to “co-sign” for him — this cosigning essentially guarantees that if the young man misses payments, then the other person (friend, family member, or other) will be legally and financially liable to make those repayments.
It should be obvious that this is a fantastic situation for the borrower. The young man here gets a car that he can’t necessarily get on his own — he’s getting help, so of course he’s getting the good side of the deal.
But for the person who’s putting it all on the line — they are risking their neck without a financial incentive. While it’s not necessarily always a bad decision, on a purely financial level, it’s always going to be quite a liability. Someone who cosigns can end up having to pay the money to buy a car or a house — and never actually get a car or a house.
So how do you actually go about finding a cosigner? In general, the only people who are willing to go the distance and co-sign without any financial incentive would be friends and/or family. Most others understand that it simply doesn’t make any sense from a financial perspective — so there needs to be a personal or social incentive.