It seemed like such an innocent request at the time. Your beloved daughter asks you to co-sign a loan for that new Toyota Prius.
You sign off on the co-sign, and six months later, your daughter has lost her job, can't make the loan payments, and there you go - it's up to you to make good on that loan debt.
This same scenario happens more than you may think. According to CreditCards.com, 38% of co-signers had to pay some or all of the bill, because the primary borrower did not. Furthermore, 28% saw a decline in their credit score because the main borrower paid late or not at all.
Being a loan co-signer can also lead to bruised feelings and battered relationships: 26% of co-signers interviewed in the CreditCards.com study say the loan experience "damaged" their relationship with the primary borrower.
As far as loan categories, auto loans accounted for 51% of all co-signings. Personal loans (24%), student loans (19%) and credit cards (16%) are also fairly common, the study reports. The odds are also best a child or step-child will be the one asking you to co-sign a loan.
"With a 38% chance of losing money and a 26% chance of damaging a relationship, co-signing doesn't sound like a very good bet," says Matt Schulz, CreditCards.com's senior industry analyst. "If you absolutely have to co-sign, then at least be aware there's a sizable chance you'll lose some money and/or get your feelings hurt."
So what does it really mean to be a loan co-signer? Straight to the chase, it means taking a risk with your cash and your credit.
"The risks of co-signing a loan can be varied and many, but at minimum it will mean that you are responsible for the debt in the event the primary debtor doesn't repay," says Amos Richards, CEO of Fundist.com, a small business financial funding firm.
"This can mean liens against your assets, and even garnishment of paychecks," he adds. "A loan is a contract - so that's going to be your primary resource as to what's possible."
Ask most loan industry insiders if they would ever co-sign for a loan, and you'll get a direct response.
"Even if it was my son, I would never do it in a million years," says Robert Pellegrini, president of the law firm PK Boston and a Massachusetts real estate attorney. "I worked hard for this credit."