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Cruising Craigslist for co-signers

If "desperation" needs another definition, this would probably be it. The all-purpose sales-meetup-social connector known as Craigslist is hosting a new category; people seeking co-signers for loans. That's right. Folks who can't get loans on their own because of bad credit or lack of employment are seeking out strangers willing to endorse their loan application and pay it off if the borrower defaults. What could possibly go wrong with this plan?

The co-signer seekers usually offer a cash payment as incentive, and nothing attracts scammers faster than cash. Obviously, someone who would go to this extreme for a loan is very, very desperate for money. John Ulzheimer, head of consumer education at SmartCredit.com, sums it up succinctly: "You're co-signing for someone a bank has already identified as someone who doesn't deserve a loan." Guaranteeing someone else's loan is a very serious matter. The Federal Trade Commission says three out of four co-signers are called upon to repay loans they backed. If the borrower defaults, the bank and collection agencies go after the co-signer. There may be late fees, collection costs, legal fees, and even wage garnishment. Remember also, the borrower is a stranger who may take the money and disappear.

The Financial Services section of Craigslist is rich with opportunities for gullible people willing to risk destruction of their own credit for a few bucks. One ad promised $500 to anyone willing to co-sign a loan for a motorcycle. Someone in Ohio offered a car and a tractor as collateral for a $5,000 personal loan. Another promised a share in a quiche-making business in return for guaranteeing a loan to get the business started.

As hard as you might look for it, there is absolutely no upside to getting involved in co-signing a stranger's loan application. The borrower risks almost nothing since his credit is already in the tank, and with a stranger for a co-signer there is little risk of being tracked down and shamed into paying up. When you look at it, the borrower has a huge incentive to take the money and run, leaving the co-signer holding the bag.

Source: CNN Money, "Desperately seeking co-signers - on Craigslist," Blake Ellis, Nov. 8, 2012

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