How to Decide Whether to Cosign a Child's Loan

Children rely on parents for many things, including money. Sometimes money issues can get tricky in the parent-child relationship and sometimes a child will go to a parent asking them to cosign a loan. Here's what you should keep in mind when deciding whether to cosign a child's loan.

Instructions

    • 1

      Decide if you trust your child. The only reason your child needs a cosigner to begin with is that the loaning institution doesn't trust your child to be able to repay the loan. So you need to decide if you do. Think about if your child is trustworthy enough to not only make payments on the loan, but also to do so on time. After all, if the loan defaults, it becomes your problem.

    • 2

      Check your checkbook. You should assess your own financial situation. See if you will be able to afford the payments of the loan if your child cannot. If the answer to that question is no, then you may want to reconsider cosigning. If your child doesn't pay, it'll become your bill instead of theirs.

    • 3

      Ask yourself if your credit can take a hit. If neither you nor your child can make payments on time, one of two things will happen. First, they could sue you for the amount. Second, your credit score will take a blow. Even if not asked to repay the loan, you could still feel the pinch, because you may be unable to obtain more credit, as other credit companies will see that loan as being your obligation even as a cosigner.

    • 4

      Make sure you understand the consequences. Before you go putting your property down as collateral to cosign, know that if your child defaults, and you're unable to pay the loan back, you may very well lose your pledged property. Check your state laws about all cosigning rules before cosigning.

    • 5

      Ask for it all in writing. Get the lender to agree, in writing, to inform you if your child is unable to make payments. Otherwise, they may come after you and your money without any warning. Having this written agreement forces them to give you time to deal with the problem without having to pay the entire amount at once.

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