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Should You Cosign on Your Child’s Loan?

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Chances are that you want to help your child get the best possible start in life, and with money. Part of that, though, might include helping your child get a loan. Whether he or she is looking for a credit card, or hoping to buy a car that can get him or her to and from work, you might be asked to cosign. It’s important to be careful about cosigning, and to think twice before signing — even for your child.

Remember that when you cosign, you are agreeing to take on the debt. If the borrower doesn’t make payments, the lender can come after you for payment. Additionally, your credit report can reflect the debt, and prevent you from getting a loan later on. Before you cosign for your child, you should think things through very carefully.

How Responsible is Your Child?

Be honest with yourself: Is your child responsible? My parents cosigned on my first car loan. I didn’t have credit, and I the old beater they had given me gave out. I couldn’t get around at college (including making the seven-hour drive home that my parents wanted me to make a couple times a year), and I wanted something I could use. My parents co-signed on my loan because I had proven myself to be reasonably responsible up to that point. I did my homework, was attending school on scholarship, had shown that I took care of obligations before having fun, and I was willing to get a car that fit my budget — even though it wasn’t my first choice of car.

Look at your child’s habits, and attitudes. Is he or she willing to live within a budget? Has he or she made sacrifices in the past to meet obligations? Do you truly trust your child to make payments as agreed? If you have an doubts about whether or not your child can handle making payments, or if you are a little afraid that your child will opt to skip a payment if he or she has something more “fun” in mind, don’t cosign. You could find yourself stuck with the debt — and if it takes a few months for your son or daughter to confess, it could damage your good credit rating.

Set Guidelines

Before you agree to cosign on any debt with your child, whether it’s a car loan, credit card, or mortgage, you need to lay down some guidelines. First of all, make it clear that if you end up making payments on the loan, it is clear not your child’s anymore, and you will repossess the item. If your child isn’t making payments on the car loan, it’ not his or hers; it’s yours, since you are making payments. If you have cosigned on a credit card, and your child repeatedly misses payments on his or her charges, you can call to cancel the account. Indeed, if you have cosign on a credit card, it might make more sense to add your child as an “authorized” user, so it’s easy to simply cut him or her off if you need to.

In some cases, your child might run into a legitimate hardship or unexpected setback. You might be willing to let him or her continue with the car or home, but make it clear that your child needs to contact you immediately if there is a problem. Make sure that your child will come to you before the payment is missed.

It’s a scary thing to cosign on any loan, and you really do have to be careful, even if you are cosigning for your child.

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6 Responses to “Should You Cosign on Your Child’s Loan?”

  1. Shirley says:

    If you cosign anything you are agreeing to pay for it. Keeping that in mind, unless it is something YOU really want and are willing to pay for, don’t do it! I’m once burned, twice shy.

  2. Jesse says:

    For my view on co-signing, please see: http://www.bargaineering.com/articles/cosigning.html

  3. Anonymous says:

    i co-signed for my daughters car loan. it started out okay, but then was late six payments in a row. two of them were over 60 days late. this was all without my knowledge. my credit score dropped about 150 points. she was too ashamed to tell me the truth. anyway, you want to help your child and treat them like an adult, but if you co-sign you still have to protect yourself. you have to have some kind of control of how and when payments are made.

  4. Educate4Less says:

    An even bigger problem is parents co-signing for their children’s private student loans, which can of course run quickly into the $50,000-$100,000 range. As noted on this site, each co-signer is 100% responsible for the loan so once Mom or Dad signs, it’s their loan!

    Add to this that almost all private student loans are variable-rate (in an when rates are at all-time lows) – even when they claim to be fixed, there are ways for the banks to raise rates! – and we find that this can be a recipe for disaster. There are better ways to borrow for college.

    • K says:

      I have to agree with this, especially in today’s job market. Not only may the graduate have trouble finding a job that pays well enough to pay back the debt, one or both parents might find themselves without a job by the time the child graduates.

      Another heartbreaking thing that could happen is if the child becomes deceased before paying off the loan, then on top of grief is the extra burden of paying off the loan, unless the parent takes out a life insurance policy on the child to cover the loan.

  5. Kevin says:

    We took the risk with our daughter, who is 18 yrs old. We cosigned on a lease for a car. The first thing we did was make sure she had a realistic calculation of what she could afford. Our agreement with her was that she has to pay us weekly, without exception, every Friday…..AND DONT MAKE US ASK. Then every month WE pay the bill. At any point she is unable to pay the weekly bill, we take the keys until she pays. We got her to agree with all of these details before signing the deal and if she didn’t agree, we wouldn’t do it. I will admit that this plan works better with us because she lives with us. An ancillary benefit to this is that this really helps her establish credit. So far, so good.


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