Is Co-Signing A Loan A Risky Proposition?

Here at Davis & Davis at least once or twice a year we meet with a client who has co-signed a loan for a friend or relative and now has been contacted by the bank or financing company for payment because the friend or relative has failed to make the necessary payments on the loan. Often, there is little we can do for people in this situation.

When a person co-signs a loan for another, the co-signing person is just as liable for the loan as the person who actually obtained the money. If the payments are not made, the bank or finance company has no obligation to first pursue collection against the person receiving the money. Collection efforts will normally be brought against the person who has more assets and thus is more likely to pay. The co-signing person is normally the better target for collection for the bank or finance company.

The moral of this story is that you should think long and hard before co-signing a loan for anyone unless you have no problem paying off the loan yourself.