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Nowadays, it is very common to co-sign a loan with your spouse or dear one to fulfill their eligibility requirement but co-signing a loan agreement means promising a lender to pay off other’s debt if the borrower defaults on loan. Therefore, it reflects that borrower is a high risk candidate and lender demands to know that if he/she can’t repay the loan, you will step in and make the repayments. Thus co-signing a loan will not only help the applicant to secure a loan but also help them to enjoy the perk of lower interest rates and processing fees. You should always keep in mind to consider few things before co-signing a loan that how they can affect you in a long run.

Impact on credit score: Suppose you have co-signed a loan and that loan is still outstanding and you need to "Apply For Loan" for yourself but you might find that your loan application get rejected as your credit score is low because the co-signing information gets updated on the credit reports of both candidates. In other case, if borrower doesn’t pay loan repayments on time for which you have co-signed the application, the late repayment history will be reported to your credit history will negatively impact your credit score.

Increased debt level: As stated before, the loan which you have co-signed will reflect as debt on your credit report and affect your loan to income ratio. Therefore, if you are applying for a new loan, the new lender will review your loan application or credit card application and take this existing debt into consideration and determine your credit-worthiness. In case, if co-signing a loan makes your debt to income ratio so high, this might decrease your chances of being approved for loan.

Savings get affected: Everybody works hard to save money for uncertain times and for their retirement but if the person with whom you have co-signed a loan loses his/her job or face a pay cut and unable to make repayments then you have to dig into your savings to repay the loan if you don’t have enough income to repay it. Surely, it could have a huge impact on your financial future.

Responsible for repayment: Co-signing a loan means taking a responsibility of making repayments if your dear one fails to make any payment. If your loved one get off the hook by claiming bankruptcy then the lender will come after you for the repayment of loan which will negatively impact your credit score and it may take too many years to remove this negative entry from your credit report.

Reduced borrowing ability: If you co-sign a loan, the lender see that you are responsible for existing loan and assume that you will be the one making repayments. It will reduce the amount of your monthly cash flow that will available to pay the EMIs on new loan. Although you hasn’t borrowed or never been in a situation to make a single repayment but co-signing a loan makes harder for you to qualify for a new loan.


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