The Horrors of Cosigning
Hat Tip to Joey Running for sending the story above along to us. As you will read, a student cosigned for a "friend", and then disaster unfolded. A cosigner is a person who is obligated to pay back the loan just as you, the borrower, are obligated to pay. A co-signer could be your spouse, a parent, or a friend. In other words, if you co-sign a loan for someone, you are responsible if that person fails to make payments. If someone is co-signing a card for you, they're agreeing to take the risk that you might not pay the bill, leaving them with debt and maybe hurting their credit score.
What is so striking about this story is how easily it can happen to any of our students. Here are a few classroom discussion questions you could follow up with if you choose to share this story with your students:
- What are other credit products that a "friend" could ask you to cosign for?
- You may need a cosigner in the near future for a car loan, private student loan, or even to rent an apartment. Who could you turn to for help?
- Now that you understand the risks of cosigning, can you envision cosigning a loan for someone? If so, who and why?
This could be an excellent complement for numerous managing credit activities and an excellent excerpt from a recent interview with our very own Yanely.
- Managing Credit Case Study: Get Me Out of My Debt Dungeon!
- Managing Credit Lesson: Why Your Credit Score Matters
- Short Video Clip with Yanely: The Dangers of Cosigning Someone Else's Loan
P.S. This is just one more glaring example to support the need for all students to be guaranteed a semester-long personal finance class to graduate. APPLY HERE to earn up to $10k for your school or $30k for your district when you adopt a standalone personal finance course that all students take before graduation.