Cosigning for a relative can be one of the worst financial decisions you make. The person you cosign for may not feel any urgency to make payments when she falls behind because you are a family member. You must make her understand the seriousness of the situation, so if you don’t want to cosign on a loan for a relative you have to point out all the reasons why. When you present an abundance of information it helps you win your case.
Explain to the relative what it means to be a cosigner. Cosigners are legally obligated to make the payments on the account if the account owner falls past due or is unable to make the payments. Let the relative know that you could not really afford to make his payments if a situation such as that were to occur. Let him know that past due debts could remain on both of your credit files for a period of seven years.
Tell your relative the debt you cosigned for will show up on your credit file, and even if payments are on time the additional debt load could stop you from purchasing a home or automobile in the future. Creditors may think you are overextended with credit and deny your request for a loan.
Take the point of view of a creditor. If a creditor would not extend your relative money, why should you? Point out instability factors regarding her situation. If she has been on a job for a short period of time there is a chance she could lose her job, leaving you responsible for the payments. Ask if she has any money in her savings account upon which to fall back on if the debt goes bad. Chances are she will not. If she does have money in savings, ask how much. Whatever the amount is, insist that she needs more and that you need to have access to it in case she defaults. This is a form of security. If your relative refuses, you should also refuse her request.
Show him how to build up his own credit file or correct the other deficiencies he may be facing. He may be able to borrow money without the need of a cosigner after six months or so. Tell him to be patient. As time passes he will be able to improve on his own situation. He will have a longer credit history, will have been on his job longer and perhaps he will be able to save some money.
Point out how she will appreciate her credit when she has to struggle to get it established. Chances are she will manage her debt more effectively when it is entirely her own responsibility. Not having a cosigner will cause her to seek more information about credit, which will work in her favor in the long run.