International Baccalaureate (IB) Practice Exam 2025 – Complete Study Resource

Co-signing a loan is generally considered a risky choice primarily because it can put your own credit at risk. When you co-sign, you are agreeing to be responsible for the loan if the primary borrower defaults. This means that if your friend or relative fails to make payments, it will affect your credit score negatively, as the loan amount becomes part of your financial obligations. Additionally, co-signing can potentially lead to tension in personal relationships if financial issues arise, as it could create a sense of indebtedness or financial strain.

The concept of financial relationships being strengthened is misleading because while helping someone might feel supportive initially, it can lead to complications later on if the borrower does not manage the loan responsibly. Co-signing is not limited to those without credit history or small loans specifically, as it carries inherent risks regardless of the borrower's credit standing or the size of the loan. Therefore, being aware of these implications is crucial when considering whether to co-sign for someone.