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Thinking About Co-Signing a Loan? Don't Get Stuck Holding the Bag

by Martha C. White /
Image: cosign a loankokouu / Getty Images

Nearly four in 10 people who co-sign a loan for someone wind up getting burned. That’s the startling takeaway from a new survey by CreditCards.com.

About one in six respondents said they had co-signed a loan for someone else; of those, 38 percent had to pay back part or all of the loan themselves.

Read More: Try This Before You Turn to a 390 Percent Payday Loan

“We were pretty surprised with how high that number is,” said Matt Schulz, a CreditCards.com senior analyst. “It should certainly make you think twice about co-signing.”

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As a population, co-signers tended to be older, wealthier and better educated — demographics reflected in CreditCards’ findings about who’s co-signing for whom. About half of co-signers did so for a child or stepchild, 21 percent co-signed for a friend and 14 percent did so for a spouse or partner, the survey found.

Roughly half of the debts co-signers took on were car loans, the survey found.

“I think a lot of that is because cars are one of the most expensive purchases that people make, especially for a young adult who may be just out of college and just starting their first job,” Schulz said.

Read More: Ex-Students With 'Income-Based' Loan Payments Face Crushing Tax Bill

About a quarter have co-signed for a personal loan, almost 20 percent co-signed for a student loan and one in 10 co-signed for a mortgage.

The survey results showed that the poorest and least-educated co-signers were most likely to be stuck with the bill, and women had an eight percentage-point greater chance of having to pay back the loan themselves.

In addition, 28 percent of co-signers suffered a hit to their credit score when their fellow borrower failed to make payments on time. About a quarter said the financial fallout had damaged their relationship with the other person.

“That’s lot of people who have people they love mad at them because of co-signing,” Schulz said. “It certainly seems cosigning can lead to some awkward conversations.”

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