To co-sign or not to co-sign: understanding the risks

Nigerians in Canada

Growing up in Nigeria, it was the norm to hear one person or the other complain about how their relative abroad was stingy as he/she refused to send them a Nintendo game console (if you lived for playing Mario bros say hi lol..), a laptop or even some clothes. These were what I called expensive demands as these so called relatives were probably just finding their feet abroad. Back then, most people were of the believe that if you lived abroad you must be doing pretty well.

Fast forward to current day Canada, I have heard of and even listened to many newcomers complain about how their long time friend, co-Nigerian or even their family member has refused to co-sign a loan or tenancy lease for them. They are always mostly hurt and feel that the person in question doesn’t want to help them settle into Canada.

Why you might need a co-signer/guarantor

A newly landed immigrant would mostly need a co-signer (also known as guarantor) for a car loan or to sign a tenancy lease if they are yet to have a credit history, find a job or are not earning the minimum income required to qualify for the loan or tenancy lease from the lenders/landlords perspective. Requesting for a co-signer is the lenders/landlords way of protecting themselves in case the primary lender or tenant defaults the terms of the loan or lease.

Of course, no one thinks that this would ever happen but what if the primary borrower finds a job in another province and break the terms of their tenancy lease. Guess who is going to be held responsible to pay up? Yes you guessed right, the friend or relative who co-signed the lease.

Understanding Why your friend or relative said no to co-signing a loan or lease for you

When someone co-signs a loan, they are signing a personal guarantee and would be 100% responsible for repaying the loan in the event that the primary borrower is unable to pay off the loan. 

The amount borrowed also shows up on the co-signers credit report, could ruin their credit history if primary borrower refuses to pay up and also reduces how much they are able to borrow for their own needs.

Managing the effects of co-signing on a relationship

If you are lucky enough to find a friend or relative who is nice enough to co-sign a loan or tenant lease for you, always make it point of duty to check in and assure them that you are making your monthly payments as required. Doing this would put their mind at rest and would also eliminate any strain from your relationship.

As we all know that a bad credit history could have unlimited negative effects on someones life, it is normal for your co-signer to be worried about whether you are keeping up with your monthly payments or not.

Also, if a friend or relative has said no to co-signing a loan or tenancy lease for you don’t take it personally, they might have signed one for someone else already, are looking to take out a loan sometime soon themselves or have had a bad experience from co-signing for someone else.