By Chris Buchheit on March 15, 2010
.jpg.aspx?width=75&height=75) There are few times in life when being a good Samaritan is a bad thing. However, when it comes to your finances, it is not a selfish act to try and protect them. If you want to do someone a favor and do something like co-sign a student loan or any other type of loan, you must keep your own finances in sight as well. Being asked to be a co-signer is a great sign of trust to a person, but be sure your finances can front the risk. While your co-signature might enable your friend to get a loan and get them out of financial trouble, there are many risks involved with this action.
Whenever you co-sign a loan, you are saying that you are half responsible for the outcome of this loan. Therefore, if this loan does not get repaid, your credit score will suffer dramatically. If the other co-signer has a history of not paying informal debts, it might be a good idea to hold off on co-signing for them. If they do not repay the loan on a timely basis, your credit score will tank. On top of this, if the other co-signer flat-out fails to make the payments, they become your responsibility. A moment of being a good person could really bite you in the butt. Not that you should not go out of your way for other people, but your own personal finances are also very important for you and your family. In this economy, keeping your finances intact is on everyone’s agenda.
Another aspect to consider is the co-signer’s present financial situation. If this person’s credit score is below average, chances are the rate he will have to pay at will be astronomical. Keep this in mind when considering being a co-signer, because the higher the rate, the harder it will be to repay the loan. Under these circumstances, the chances of the other person paying back the loan on the timely basis is probably lower.
Being a Good Samaritan is great for society, and it’s something that should never be disregarded. However, looking out for your finances might be the more responsible thing to do if people are dependent upon them.
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