Q&A: Co-signing for a loan

September 19, 2008

My sister asked me to co-sign a loan so she can get a larger amount than she'd qualify for on her own. I trust her to repay the debt fully and on time, but what risks do I face if she doesn't?

Q: My sister asked me to co-sign a loan so she can get a larger amount than she'd qualify for on her own. I trust her to repay the debt fully and on time, but what risks do I face if she doesn't?

A: You'd be on the hook for whatever amount she still owes, plus any late charges, collection fees, or other penalties the lender applies. If she defaults on the loan, the black mark will likely show up on your credit record as well as hers. Even if your sister misses just one payment, the lender may be able to collect from you without first trying to get the money from her. If you decide to go ahead with this, don't co-sign a loan for an amount you won't be able to repay promptly if necessary. Also, see if the lender will agree in writing to notify you if your sister does miss a payment, so you can address the situation before it gets worse.