Question: I’ve read how you should never agree to cosign because 75% of the time the debt will not be fully repaid by the original party, leaving you to pay the rest. However, are there advantages to doing it this way vs. loaning someone directly, as a personal loan?
I have a bandmate who has started a sole proprietorship. We need $15K in loan money to get our first record out. My bandmate works as a senior project manager at Chevron and probably pulls in close to $100K. But she is a free spender ( rent around $2400/mo ) and has bad credit, plus a child in private school. So, she doesn’t have the money right now to front the $15K.
Actually I have enough technically to cover the $15K but would not like to risk the money on the record all at once, as it would dig into my savings a fair amount.
In this scenario, wouldn’t a cosign be safer than a personal loan for me? What can I do to minimize my risk? She has enough collateral to cover the loan principal and then some. Should I also ask to see her financial statements and list of expenses? ( would that automatically be part of the cosigning process? )
Answer: If she has enough collateral, she doesn’t need a cosigner. Either she lied about the collateral (and the bank knows better), or something else about her credit history makes her enough of a risk that the bank says “cosigner needed” even though she DOES have collateral. In either case, this makes cosigning the loan extremely risky for anybody (a sucker’s bet). If you can’t find a label to pay for producing your record, is it REALLY worth investing $15K toward a goal which most likely will never be met? Forget about that, and concentrate on the following:
The question you need to ask yourself is this . . . do you think the record is worth $15K to you? If the answer is yes, finance the thing yourself, and leave your bandmate out of the financial arrangements. If the answer is NO, then let your bandmate find some way to finance the record without involving you IN ANY MANNER in the financial arrangements. There is no in-between that you won’t regret later.
This is all assuming that your band stays together long enough to finish the record and/or pay off the loan. The odds are against either one of those things happening.
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