Cosigner for an unsecured personal loan?
September 26, 2013 7:21 PM Subscribe
I need to borrow about $20,000 to $25,000 in order to clean up high interest rate debt and get back on my feet. I can't do this on my credit and I have no assets to secure a loan. I do, however, have a dear friend who is wealthy and who, I am pretty sure, would cosign on a loan for me. How does that work?
I have terrible credit for a variety of reasons that I am trying to resolve. This question isn't directly about my bad credit.
I would rather not approach my friend with the cosigning request unless I already know the ins and outs. I am also really freaked out by the idea of going to my bank with this question. I would rather know before talking to either what the process, possibilities, and ramifications are.
My friend comes from a wealthy family and his income is from a trust. He doesn't have a job, and I'm not sure what assets he owns. He recently sold his home and is in a long term lease at the moment, but it is possible that he is listed as an owner on other family real estate. However, the trust probably has the greatest amount of assets. He has perfect credit, of course.
Would a bank lend me that much with him cosigning? What are the things I'm not considering? I know, for example, that any amount for which he cosigns will decrease his ability to get credit by an equal amount, as he will be on the hook for the whole thing if I default. I don't think that would be an issue for him. Is there any hope for me and my screwed up credit?
I have terrible credit for a variety of reasons that I am trying to resolve. This question isn't directly about my bad credit.
I would rather not approach my friend with the cosigning request unless I already know the ins and outs. I am also really freaked out by the idea of going to my bank with this question. I would rather know before talking to either what the process, possibilities, and ramifications are.
My friend comes from a wealthy family and his income is from a trust. He doesn't have a job, and I'm not sure what assets he owns. He recently sold his home and is in a long term lease at the moment, but it is possible that he is listed as an owner on other family real estate. However, the trust probably has the greatest amount of assets. He has perfect credit, of course.
Would a bank lend me that much with him cosigning? What are the things I'm not considering? I know, for example, that any amount for which he cosigns will decrease his ability to get credit by an equal amount, as he will be on the hook for the whole thing if I default. I don't think that would be an issue for him. Is there any hope for me and my screwed up credit?
Any chance you could borrow from your friend?
You might want to borrow from the bank. A bank loan will put less potential stress on your friendship and paying it off successfully will have a positive impact on your own financial history.
posted by Blazecock Pileon at 7:40 PM on September 26, 2013 [4 favorites]
You might want to borrow from the bank. A bank loan will put less potential stress on your friendship and paying it off successfully will have a positive impact on your own financial history.
posted by Blazecock Pileon at 7:40 PM on September 26, 2013 [4 favorites]
I have never met anyone with debt with bad credit who has ever gotten themselves out of this debt by borrowing more.
If you borrow from this friend you are pretty much saying you will not be their friend any more, esp. if you default.
Even if that doesn't happen, getting loans (or cosigns) from friend and family changes the dynamic between you. Every purchase, trip, vacation, life choice gets viewed through paying off the debt (or not paying off the debt).
I would recommend checking out the Snowball method of clearing out debt.
It is the main way I have seen people with spending and debt problems clear out problem debt and keep it away.
Good luck.
posted by bottlebrushtree at 7:48 PM on September 26, 2013 [12 favorites]
If you borrow from this friend you are pretty much saying you will not be their friend any more, esp. if you default.
Even if that doesn't happen, getting loans (or cosigns) from friend and family changes the dynamic between you. Every purchase, trip, vacation, life choice gets viewed through paying off the debt (or not paying off the debt).
I would recommend checking out the Snowball method of clearing out debt.
It is the main way I have seen people with spending and debt problems clear out problem debt and keep it away.
Good luck.
posted by bottlebrushtree at 7:48 PM on September 26, 2013 [12 favorites]
If they cosign for you and anything were to happen to you: you lose your job, become disabled and are unable to work, or if you were to die unexpectedly, your entire loan is now the sole responsibility of your friend. You are imagining the best-case scenario, where more debt solves the problem of the debt you already have. Consider the worst-case scenarios and ask yourself whether you would feel ok leaving this large loan + interest in your friend's lap.
Also, there's a real possibility that this would change the dynamic and nature of your friendship permanently. There are many reasons why people hesitate or refuse to loan large sums of money to family and friends.
If you do decide to do this, your friend would have to expose his entire financial life to the bank that you both agree to work with. This would include his Trust arrangements, his current bank account balances, his investments, and any other major assets he has as well as his own current debt levels.
posted by quince at 8:15 PM on September 26, 2013 [6 favorites]
Also, there's a real possibility that this would change the dynamic and nature of your friendship permanently. There are many reasons why people hesitate or refuse to loan large sums of money to family and friends.
If you do decide to do this, your friend would have to expose his entire financial life to the bank that you both agree to work with. This would include his Trust arrangements, his current bank account balances, his investments, and any other major assets he has as well as his own current debt levels.
posted by quince at 8:15 PM on September 26, 2013 [6 favorites]
I do, however, have a dear friend who is wealthy and who, I am pretty sure, would cosign on a loan for me. How does that work?
Hi, I'm a lawyer who represents creditors. I am your worst nightmare if things go bad.
The way it works is that your wealthy friend becomes a co-debtor and is just as responsible as your for paying off the loan. If you default, the bank sues you and sues him.
I don't think that would be an issue for him.
Because why? He'd be happy to pay for your failure to pay? Wealthy people don't get wealthy by putting themselves on the hook to help their debtor friends go deeper into debt.
I am making a lot of assumptions now about a trust I have never read, but this is how it usually works. You mention that his income comes from a trust. I imagine that he is not the trustee of the trust. If so, that means that he does not control how the trust assets are managed and cannot withdraw money at will. The trustee controls all that. Oh, and I can guarantee you, if you default, there is no way on God's green earth that the trustee is going to disburse the money to bail you out. And if the trust was properly drafted, the trust assets will be shielded from judgment execution. Like I said, I haven't read this trust, but this is how it generally works.
If your friend is wealthy, I can assure you that he knows what being a co-obligor means and how it works. He won't need you to "break it down" for him. He will know that cosigning your loan would be a very, very bad idea for him. And if I were the bank, I'd have serious reservations about extending credit to a debtor will horrendous credit and his judgment-proof co-signer.
Have you considered bankruptcy? (this is a serious question)
posted by Tanizaki at 8:16 PM on September 26, 2013 [10 favorites]
Hi, I'm a lawyer who represents creditors. I am your worst nightmare if things go bad.
The way it works is that your wealthy friend becomes a co-debtor and is just as responsible as your for paying off the loan. If you default, the bank sues you and sues him.
I don't think that would be an issue for him.
Because why? He'd be happy to pay for your failure to pay? Wealthy people don't get wealthy by putting themselves on the hook to help their debtor friends go deeper into debt.
I am making a lot of assumptions now about a trust I have never read, but this is how it usually works. You mention that his income comes from a trust. I imagine that he is not the trustee of the trust. If so, that means that he does not control how the trust assets are managed and cannot withdraw money at will. The trustee controls all that. Oh, and I can guarantee you, if you default, there is no way on God's green earth that the trustee is going to disburse the money to bail you out. And if the trust was properly drafted, the trust assets will be shielded from judgment execution. Like I said, I haven't read this trust, but this is how it generally works.
If your friend is wealthy, I can assure you that he knows what being a co-obligor means and how it works. He won't need you to "break it down" for him. He will know that cosigning your loan would be a very, very bad idea for him. And if I were the bank, I'd have serious reservations about extending credit to a debtor will horrendous credit and his judgment-proof co-signer.
Have you considered bankruptcy? (this is a serious question)
posted by Tanizaki at 8:16 PM on September 26, 2013 [10 favorites]
Please don't go into more debt to get out of debt. That is NOT how it works.
And even the BIBLE says it is totally a mistake to cosign a debt. Please do not put your friend in that position.
posted by St. Alia of the Bunnies at 8:51 PM on September 26, 2013 [1 favorite]
And even the BIBLE says it is totally a mistake to cosign a debt. Please do not put your friend in that position.
posted by St. Alia of the Bunnies at 8:51 PM on September 26, 2013 [1 favorite]
My friend comes from a wealthy family and his income is from a trust. He doesn't have a job, and I'm not sure what assets he owns. He recently sold his home and is in a long term lease at the moment, but it is possible that he is listed as an owner on other family real estate. However, the trust probably has the greatest amount of assets. He has perfect credit, of course.
If I were in the loan-making business, adding this person to your loan applicatiion would not reassure me. In fact, it would make me think that there was something untoward going on, because any possible recovery in default would be against a likely bankrupt person (you cite "no assets") and someone who has no assets accessible to creditors (the trust).
I think this is a bad idea all around, but I think that is largely beside the point as I am certain that it cannot go forward.
posted by Inspector.Gadget at 8:53 PM on September 26, 2013
If I were in the loan-making business, adding this person to your loan applicatiion would not reassure me. In fact, it would make me think that there was something untoward going on, because any possible recovery in default would be against a likely bankrupt person (you cite "no assets") and someone who has no assets accessible to creditors (the trust).
I think this is a bad idea all around, but I think that is largely beside the point as I am certain that it cannot go forward.
posted by Inspector.Gadget at 8:53 PM on September 26, 2013
From your friend's perspective, co-signing for a loan is no different than loaning you the money himself. In either case, your failure to pay back the loan would cause your friend to lose the unpaid principal of the loan.
posted by Hatashran at 9:02 PM on September 26, 2013
posted by Hatashran at 9:02 PM on September 26, 2013
If your friend doesn't have a job and most of his assets are either in the trust or in real estate co-owned with others, the bank may not accept him as a co-signer, because he wouldn't have liquid assets sufficient to cover the loan if you default. When my father, who is retired, cosigned a loan for my sister, the bank basically required him to have the amount of the loan in cash in a bank account, because they wanted to know that they could get their hands on cash immediately if she defaulted.
But beyond that, I don't think this is something you should ask a friend to do. Would you ask the friend to give you $25k outright? Because in the worst case scenario, that's what this is, with a side bonus of potentially fucked up credit and a huge amount of ill-will in the friendship. I think you're putting him in a really unfair position by even asking. The fact that he's rich doesn't mean that it's okay to use him in this way. And even asking puts him in a hugely awkward position where he should say no, but would feel bad about it because he likes you. Even asking could hurt the friendship.
Finally, I think this probably isn't a good path for you. You've gotten yourself into this situation by borrowing money; the way out of it is to learn that borrowing money to solve problems doesn't work for you. I'd recommend that you start something like the Dave Ramsey plan, or some other version of the debt snowball. Because your problem right now isn't really about interest rates; it's about learning how to manage your money and live within your means. And a bank loan for which your friend is on the hook is not going to serve that goal.
posted by decathecting at 9:33 PM on September 26, 2013 [3 favorites]
But beyond that, I don't think this is something you should ask a friend to do. Would you ask the friend to give you $25k outright? Because in the worst case scenario, that's what this is, with a side bonus of potentially fucked up credit and a huge amount of ill-will in the friendship. I think you're putting him in a really unfair position by even asking. The fact that he's rich doesn't mean that it's okay to use him in this way. And even asking puts him in a hugely awkward position where he should say no, but would feel bad about it because he likes you. Even asking could hurt the friendship.
Finally, I think this probably isn't a good path for you. You've gotten yourself into this situation by borrowing money; the way out of it is to learn that borrowing money to solve problems doesn't work for you. I'd recommend that you start something like the Dave Ramsey plan, or some other version of the debt snowball. Because your problem right now isn't really about interest rates; it's about learning how to manage your money and live within your means. And a bank loan for which your friend is on the hook is not going to serve that goal.
posted by decathecting at 9:33 PM on September 26, 2013 [3 favorites]
This seems like a really bad idea to me. I have never heard of a good result of co-signing a loan for a friend.
posted by Justinian at 11:07 PM on September 26, 2013
posted by Justinian at 11:07 PM on September 26, 2013
Please don't go into more debt to get out of debt. That is NOT how it works.
Regardless of the co-signing idea, paying off high-interest debt with low interest debt is a good idea, no? You save money in the long run on the amount of interest paid.
posted by EndsOfInvention at 5:35 AM on September 27, 2013 [1 favorite]
Regardless of the co-signing idea, paying off high-interest debt with low interest debt is a good idea, no? You save money in the long run on the amount of interest paid.
posted by EndsOfInvention at 5:35 AM on September 27, 2013 [1 favorite]
The only way this can work is if you can be absolutely sure that you will never, ever fuck up with this loan in any way, including late payments due to any reason whatsoever.
If there is not a single chance in the world that your friend would receive a letter, phone call or any other communication regarding this loan and if you committed to paying this loan off at an accelerated rate in order for the whole business to be over as soon as humanly possible, then and only then should you ask this of your friend.
If you fuck up even once your friendship will be irrevocably changed.
posted by h00py at 6:17 AM on September 27, 2013 [1 favorite]
If there is not a single chance in the world that your friend would receive a letter, phone call or any other communication regarding this loan and if you committed to paying this loan off at an accelerated rate in order for the whole business to be over as soon as humanly possible, then and only then should you ask this of your friend.
If you fuck up even once your friendship will be irrevocably changed.
posted by h00py at 6:17 AM on September 27, 2013 [1 favorite]
Seconding bankruptcy. If you are in a deep pit and this is the only way you can find to get out of it, that's what bankruptcy is for. If you're paying 30% interest, that's ~$7,000 per year to just stay where you are.
That said, I'll disagree that borrowing money to get a lower interest rate is absolutely a bad idea. If one's debt was caused by something uncontrollable (medical costs, accident, etc.) rather than not having good spending habits, consolidating to a lower interest loan can truly help.
I have loaned friends money to help them get out of bad situations. Without knowing your specifics, I think I'd be far more likely to personally loan you $1,000 to see how you handled it (does the $25/month that would save you in interest actually end up going to paying down more debt?). And then maybe lend you another $1,000 and so on.
P.S. If you are a gender that your friend is interested in sexually and he has ever even hinted at being interested in you, do not bring money
posted by Candleman at 7:00 AM on September 27, 2013 [1 favorite]
That said, I'll disagree that borrowing money to get a lower interest rate is absolutely a bad idea. If one's debt was caused by something uncontrollable (medical costs, accident, etc.) rather than not having good spending habits, consolidating to a lower interest loan can truly help.
I have loaned friends money to help them get out of bad situations. Without knowing your specifics, I think I'd be far more likely to personally loan you $1,000 to see how you handled it (does the $25/month that would save you in interest actually end up going to paying down more debt?). And then maybe lend you another $1,000 and so on.
P.S. If you are a gender that your friend is interested in sexually and he has ever even hinted at being interested in you, do not bring money
posted by Candleman at 7:00 AM on September 27, 2013 [1 favorite]
No. From experience, there is no quicker way to ruin a friendship than to put some sort of financial obligation into the mix.
Seconding the suggestion of Lending Club. I think your FICO has to be at least 600 to get a loan there though. MeMail me if you'd like a referral link.
posted by tckma at 12:05 PM on September 27, 2013
Seconding the suggestion of Lending Club. I think your FICO has to be at least 600 to get a loan there though. MeMail me if you'd like a referral link.
posted by tckma at 12:05 PM on September 27, 2013
I think it's a little presumptuous to ask your friend to help you unless you need some sort of life saving treatment. Wealthy people are constantly being asked for money. To me your question comes across as, "You didn't do anything to earn your money. That's not fair. Give it to me because I need it." Asking you friend for money isn't being much of a friend. If I were your friend, I would be inclined to drop you as a friend. On the other hand, if you were looking for help getting medical treatment or getting medical treatment for your pet, I would be glad to help.
posted by parakeetdog at 1:24 PM on September 27, 2013
posted by parakeetdog at 1:24 PM on September 27, 2013
Agree with the posters above who think this is a bad idea (sorry). I got myself out of $35-40k of CC debt using CCCS. A lot of it was high interest. Worked wonders for me and my credit is nearly perfect now.. maybe an option for you?
posted by getawaysticks at 11:26 AM on September 30, 2013
posted by getawaysticks at 11:26 AM on September 30, 2013
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Sorry, I know that's not an answer to the question you asked, and it's great that you're trying to limit his exposure. However, if you do have to make a big ask for him to cosign, these options may be good (for him and you) alternatives.
In your shoes, I'd go to the bank, be candid, and apply for the loan. If/when you get rejected, ask them what it would take to change a no into a yes, including a cosigner or security. Becoming a cosigner on your loan may cause the bank to become intrusive into your friend's finances to a point that may sour him on participating. The outcome of this bank conversation could also alter your feelings, if any, about getting a loan from your friend.
posted by Sunburnt at 7:32 PM on September 26, 2013