Why Co-Signing For A Debt is NEVER a Good Idea (Part III)

So we were last talking about what remedies there are for you if you make the mistake of co-signing for someone.  The short answer is not many.   Depending on what type of loan you co-signed for determines what options you have to get out of the obligation to pay.  Student loans are the hardest by FAR to get out from under; the only remedy is if the lender allows you to be taken off of the promissory note (the loan obligation).  Student loan companies almost never do this, but when they do, it’s only if the primary borrower has made long-term, consistent payments, AND has good enough credit to warrant letting you off the hook.  As mentioned in Part II, you’re responsible for a student loan even if you declare bankruptcy.  Other loans, such as car notes, etc. are similar; the lender has to agree to let you out of the obligation.  The only difference is that traditionally, you can get out of these loans if you declare personal bankruptcy.

But stop for a second and consider this: if you loaned a stranger with “sketchy” credit a large sum of money solely on the basis that a creditworthy person would pay that loan back if anything went wrong, would YOU let the creditworthy person off the hook?  I certainly wouldn’t.  Even if Mr. Sketchy Credit paid me back at the rate he was supposed to, and was never late with those payments, I’d make sure that I had a “Plan B” in case Sketchy lost his job, got a divorce, etc.   And that’s just me, an individual person.  Banks, which rely on consumer lending to pay their bills and make profits, do this as their business.   Their very existence depends on how good they are at assessing the risk of lending people money.  This leads me to my (next to) last point…

Institutions in the business of lending money to people have more to lose than anyone when they decide to approve a loan, especially to someone with poor credit.  Banks and other lending companies have spent countless dollars developing a credit system, paying lawyers, accountants, and other professionals to help them establish the most effective and efficient way to lend money without losing that money.   Don’t fool yourself into thinking that your ability to evaluate Mr. Sketchy Credit’s ability to pay back the loan is better than theirs.

Before you cast me out as another non-feeling, cold, calculating lawyer, allow me to say this: I know you care about the person asking you to co-sign; otherwise you wouldn’t be considering tying yourself to them financially for (what could be) decades.  But ask yourself this question before agreeing to do it:  who are you really helping by agreeing to pay someone else’s loan?  If your friend or loved one isn’t capable of paying back the debt, then you’re enabling them to acquire MORE debt.  So chances are you’re not helping them.  If you end up being responsible for the debt, then that’s just more stress for you.  But the lender…the lender always makes out, don’t they?  They get to lend money to one person, but ultimately have TWO people to harass for it if the loan doesn’t get paid back.

So rather than co-signing for someone, what can you do to really help a friend/family member in need?  If you HAVE to get involved financially, I would suggest either: (1) giving them the money outright; or (2) sign for the loan yourself, leaving the other person off of it completely.  If you aren’t willing or able to do either of those things, then just tell the person that you can’t help them.  Lie if you have to.  Don’t allow a lender (like a car dealership) to even run your credit.  NEVER co-sign for a student loan, no matter what the circumstances unless you’re prepared to have it for life.

But maybe I’m wrong, and I am being cold-hearted.  Is there a situation you can think of that would warrant co-signing for someone?  Let me know what you think.


About jacksonlegalokc

I am a lawyer/solo practitioner in Oklahoma City with Jackson Law Firm, PLLC. View all posts by jacksonlegalokc

One response to “Why Co-Signing For A Debt is NEVER a Good Idea (Part III)

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