A Friend Asked Me to Cosign a Loan. Here's Why I Said No

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  • Recently, a friend asked me to cosign a car loan.
  • She needed to buy a new vehicle and couldn't get approved for a loan on her own.
  • I told her I wasn't able to help her because doing so would risk our friendship and my finances.

I said no for several important reasons, including the risk to our friendship.

Recently, my friend asked me for a big favor. She was trying to buy a car and, since used cars are really expensive right now, she wanted to make sure her loan was affordable. She knows I write about finances and have written about my great credit, and hers wasn't so good so she was hoping I would cosign the car loan so she could get a better rate.

Unfortunately, I had to tell her no. And here are a few key reasons why I did.

1. I didn't want to bet my credit score on her ability to repay the loan

One of the biggest reasons why I was not willing to cosign is because I know that if I do that, the loan will show up on my credit report and her borrowing behavior will affect my own credit score.

Lenders require cosigners when a review of the primary borrower's finances suggests they won't pay back the debt. In other words, professionals who are skilled at assessing the risk of repayment had decided the risk was really high when it came to my friend.

I didn't want to bet my own great score that she'd never pay late or miss a payment on her loan -- especially when she's told me in the past that she's fallen behind on credit card payments occasionally.

2. I didn't want to put our friendship at risk

Another huge reason I couldn't cosign is because I've been friends with her for a long time and I didn't want to risk that friendship. If she stopped paying and my credit was damaged or the lender tried to collect money from me, it would be really hard for me not to resent her for it -- especially when I've worked hard on my finances to earn good credit.

I also didn't want to find myself in a position where I had to nag my friend to pay her bills or check up on her -- both of which I'm sure she would have resented.

3. I didn't want to jeopardize my own borrowing ability

There was also another reason why I didn't want to cosign for her. Having another loan on my credit report could have caused me problems even if she did manage to repay the loan. Even though I would only be a cosigner, the loan would affect my debt-to-income ratio if I ever wanted to refinance my mortgage or borrow for another reason. She was hoping to take out a long loan so this would be an issue for years to come -- and I wasn't willing to deal with that.

4. I didn't want to get stuck with the loan if the worst happened

Finally, I didn't want to have to pay off the car loan or be left with a repossession on my record if she decided not to pay or, worse, if something happened to her finances and she became unable to pay.

Fortunately, I was able to explain all of these concerns to my friend and she understood and wasn't mad that I couldn't cosign. If someone asks you to cosign, you may also want to evaluate these risks and, if you decide to say no, these reasons are all good justifications to explain why you won't cosign a loan to a friend.

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