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So you're trying to make a decision on whether to co-sign on a friend or member of you families application for a loan. Good for you. And even better for you that you have decided to educate yourself on the matter first before agreeing to anything.

One of the most important things to take note of before co-signing for a loan is that this loan will appear on your credit report and directly affect your credit rating. Signing for the loan with the family member or friend might be the best thing to do at the time, it could well be the difference between them being accepted or declined for the particular loan, but know that it could also affect your ability to be accepted for a loan further down the line, or at least affect the interest rates offered by a lender to you.

You, as a co-signer, should have full access to the account information. Often co-signers will be unaware there is an issue with the loan, and before they have realized this issue it has already affected there credit rating in a negative way. Always make sure the lender will inform you if there is any late payments or other payment issues with the borrower immediately as they arise, so as to avoid these types of negative impacts on your credit rating. You might even consider having the borrower (your friend or member of family) provide you with the statements verifying that the payments are being made successfully.

Co-signing is a big risk, so it would be best not to make a habit of doing so. It's great to be generous, just know what you are getting yourself in to. If you don't feel that you are in the financial state to co-sign for the loan, then do not feel pressured into doing so. The risks are great enough for someone in a secure financial position, so in a lesser position in that, do not take up extra responsibilities for finance.

To further minimize the risk as a co-signer on a personal loan, be sure that the borrower has taken out personal loan insurance. Even in circumstances that can be slightly out with people's control, payments are expected to be made. Insurance of this type can cover payments for a set amount of time due to medical issues or redundancy.

Before co-signing on a loan for a family member or a close friend, be aware of the possible risks to your relationship. If monetary issues were to arise, the relationship could become strained. This of course depends on the cause of the monetary issues, if they are caused by matters out with the borrower's control then strains on the relationship wouldn't be as tight as if it were down to the borrower's spending habits or poor money management. Be sure to check if any issues of poor money management have come up in the past before agreeing to co-sign to the loan, if they have then it may make your decision a lot easier.

When you co-sign for a loan, just be sure that you know the risks, and have taken all the precautions available against those risks. These are not just risks to your finance, but to your relationship with a family member or friend as well. Make sure you can afford the cost of a missed payment, and that your relationship can handle the strain of monetary problems. And if you can, well, good luck, and happy loaning.