Is It Okay To Co-Sign a Loan For My Friend?

Q: Is it okay to co-sign a loan for my friend if he can’t get a car on his own?

Rachel: No way. Co-signing is one of the worst money mistakes you can make.

I know it’s your friend and you want to help, but there’s a reason you’re being asked to co-sign. That’s because the bank doesn’t think your friend will pay them back!

Banks aren’t stupid. If they loan someone money, they’ll do everything they can to make sure they get paid, and that’s where co-signing comes in. I’m willing to bet that if you co-sign for that car, then you’ll be paying for it one day.

When your friend can’t pay for the car anymore, the bank will come calling you—and you’ll be held just as responsible for the debt. That debt will trash your credit just like your friend’s.

Don’t do this. In fact, encourage your friend to save up some money and pay for a used car with cash. They shouldn’t be signing on a loan in the first place. The best way to pay for a car is with cash.

Rachel Cruze Growing up as Dave Ramsey's kid, Rachel Cruze learned the basic principles of money at an early age. She travels across the country teaching those same principles, in a personal and passionate message of money and hope, to teens and young adults. To find out more about Rachel, visit www.daveramsey.com/speakers or follow her on Twitter at @RachelCruze.