Why You Should Refuse To Cosign A Loan

Why You Should Refuse To Cosign A Loan


Your adult offspring may come to you asking you to co-sign their loan. As a parent, you want to do what you can to help your children succeed, and credit cardssometimes that involves helping them out with their credit.

Contrary to popular belief, you may learn the hard way that co-signing could be the worst decision you made and for the following reason:

If your child is late with payments or defaults on a loan, the creditor may not be required to notify co-signers (you) when a borrower falls behind. This requirement varies from state to state, but the result could be the same: your credit rating gets whacked in the process.

A better option to help your child build a solid credit history is to have them co-sign your loan or credit card. Statements are sent to you and your child can still access a line of credit while building up their credit history.

Many parents fail to realize that their own credit history is at risk when they co-sign for a loan. You can’t intervene when you are not aware of the problem.

(Source: BottomLine Personal)


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  1. M Moore
    M Moore 22 June, 2008, 17:02

    Ditto! I wrote a brochure, “Ways to Ruin your Credit,” and most definitely included co-signing on loans (for family members or otherwise). It is a financially dangerous practice. If a financially qualified person wants to help someone secure credit, there are other ways to share the responsibility of the debt without putting your good credit on the line (or even tying up your credit). Find out first, how much the person is actually able to qualify for on his or her own. If he (or she) can only finance 10k (for an auto, for instance), offer to put up a modest amount of your own funds (maybe 5k) IN ADDITION TO the borrowers OWN savings. That’s right: Encourage the borrower to demonstrate good faith and assume a level of responsibility up front. If she has 3k saved and you can afford to “loan” 5k (perhaps borrowing against your own savings for a lower interest rate), then the car shopper has 18k to spend. If she wants a 25k car, excuse yourself from the deal! If your name goes on a prommissory note (a promise to pay), then the loan (debt, obligation) is Yours.

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