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.

Child’s Loan


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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