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Avoid co-signing like the plague

By Steve Bucci · Bankrate.com
Monday, January 13, 2014
Posted: 6 am ET

For more than a decade I have been telling people to avoid loan co-signing like the plague. Why? Because, all too often the co-signee has a financial hiccup that ends with the co-signer having to make one or more payments. This can lead to embarrassment, anger and, all too often, broken relationships.

Almost one quarter (24.2 percent) of consumers have a FICO credit score below 600 according to the most recent numbers available from the California-based credit scoring company. A credit score in that range would translate into having “bad,” or sub-prime, credit. These consumers often find it difficult to qualify for a lease on an apartment or house, and many try to boost their chances with a co-signer. A landlord may be more willing to take a risk on someone with bad credit as long as they're backed by someone with good credit -- someone who'll pay if the leasee does not.

Typically, a family member or loved one is asked to co-sign the lease. But that's starting to change. Websites like Craigslist have posted ads from strangers who are willing to co-sign for a fee. And now, companies are getting into the co-signing business.

I'm not sure if that's good news for consumers or not. These companies charge big fees to co-sign a lease. One web-based firm, Co-signer.com, charges $720 to guarantee a $1,000-a-month lease for three months. That's almost one quarter of the total amount in lease payments.

My concern is that this is another product that could potentially take advantage of consumers with bad or no credit. Unless the lease agreement mandates that, in case of default, the landlord must turn to the co-signer to satisfy the lease, the consumer could still be held responsible. The landlord could still pursue the consumer for missed rent payments, even though the consumer has paid a high fee to have the lease guaranteed. Should the corporate co-signer fail to pay up, or be difficult to reach, it is the consumer who will be easy to sue.

Before paying to have a lease guaranteed, I would encourage consumers to thoroughly review the lease agreement and ask the landlord the procedure for collecting any unpaid rent. I’m not a big fan of co-signing because of the many and varied possibilities for hard feelings and financial woes for both parties. I really don’t want to see consumers pay a large fee and still be left on the hook for any default as part of the bargain.

Times may change, but my advice remains the same. Avoid co-signing like the plague!

What do you think?

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4 Comments
Juliette Proenza
January 14, 2014 at 7:22 am

If no one will ever give anyone else a 2nd chance then how will it get any better for all of us? You need to remember that in 2008 a lot of good people suffered losses virtually through no fault of their own. What about the woman who handled her mother's medical bills for years? Or the man who went through a terrible divorce which nearly wiped him out just so he could see his children?
Certainly there are those who are not creditworthy and will some investigating we know who they are.
Today companies like CoSignPlus.com are helping those who deserve a 2nd chance. Don't we all?

Jack
January 13, 2014 at 3:51 pm

Stories like these are silly. Of course anyone can have a bad experience, just as easily as those that don't. However, to categorically say that nobody should ever do anything is just goofy.

As with everything in life, take time to investigate all aspects ans act accordingly.

My daughter dug herself into credit card debt and asked me to co-sign a personal loan to pay off the bills and provide lower interest/structured payments. I agreed to do so - only if/after - she paid the balance down to a specified amount. She did that, and I co-signed for her loan.

She not only made timely payments, she doubled up on some and paid the loan off early. Within two years, she restored her credit, saved enough money fro a down payment and bought a house. She owes nothing on her late-model vehicle and has a significant amount of money in savings.

I am very proud of her, and I know that she is proud of herself. More importantly, she learned two valuable lessons: Manage you money wisely and be willing to help those - who are willing to help themselves.

Mark Wise
January 13, 2014 at 3:50 pm

The Bible said it a long time ago, "Whoever puts up security for a stranger will surely suffer, but whoever refuses to shake hands in pledge is safe." (Proverb 11:15; see also Proverbs 20:16, 22:26)

Gloria
January 13, 2014 at 3:27 pm

I have been bitten by the co-sign demon. I was trying to help a girlfriend out who was going through a rough break-up. She was trying to get a new apartment. She put up the deposit and was making regular payments for almost a year. Then, she decided to get back with her former ex and moved back in with him and just completely ignored the apartment I co-signed for..She promised to keep up with the payments and lied so much that it just made me mad and we got into a big argument about it. I explained what was going on to the rental office and believe it or not they were very cooperative and even gave me tips on what to do to try to get my girlfriend to pay. They advised me that I wasn't the first friend that this had happened to and that they see this a lot.. Anyway..I ended up filing court papers in small claims court and she and her boyfriend paid for the remaining months on the lease. Of course, we are no longer friends and she said if I had been a REAL friend, I would have never filed court papers(even though all my phones calls and personal letters were ignored). So I will NEVER CO-SIGN again!!! Also, don't charge anything for anyone or lend money!!!!!! Same problem!!!!!!! Why???? I don't understand????!!!!!

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