While you may think you are helping make dreams come true for a family member or friend by co-signing a loan, it could turn out to be a nightmare for you if the person does not make good on the loan.
While you may not realize it, if the person you have co-signed for defaults on the loan, you are responsible for repaying the debt, putting your own credit standing, credibility and finances on the line. You run the risk of not only increasing your debt. In addition, if you can't pay it back, you could have your bank account frozen, wages garnished and credit score lowered for the defaulted loan, Tayne says.
Before signing on the dotted line, make sure that you set ground rules about repayment, Tayne says, and you need to be confident that the person will make timely monthly payments. Otherwise, you will end up with not only more bills to pay but also a ruined relationship.