“Son, Can You Co-Sign My Loan?”

This week I spoke with Lyneka Little of ABC News about the pitfalls of turning family relationships into business ones.  It’s something I know more than a little bit about.

As the result of the Great Recession, more and more parents are asking their children to co-sign loans for them. Being a co-signer on any note comes with pitfalls.  A co-signer becomes liable for the full loan if the other party fails to pay their note as agreed. One of the problems of co-signing is you usually don’t know there’s a problem until the loan is in default.  If a payment is missed, you’re one of the last to find out.

A collection agency will go after a co-signer as aggressively as the original debtor. And, unfortunately, unlike a bank, a co-signer cannot repossess an auto loan if parents fall behind on a financial obligation.

What’s more, co-signing on a loan turns a familial relationship into a business one. The bottom line is that the co-signer must be ready to pay off the loan. If you think it’s a wise thing to do, then, of course, go for it but you still must say, “I’m going to be just fine if I have to step in and make this good because that’s the bottom line.”

You can read the whole article here.

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One Response to “Son, Can You Co-Sign My Loan?”

  1. Curt Jensen November 12, 2010 at 2:11 pm #

    Rick, recently handled an estate for a “grandma”. when I asked about any debts the children said, “none grandma had pre-paid funeral, medicare, medcicare supplement ins. she never had credit card, and always paid her bills the same day received” so proceeded to with estate and just getting ready to close and to my surprise found a $8,000+ proof of claim filed against the estate by a car finance company. Family convinced must be a mistake. when I sent for the documentation, sure enough grandma had co-signed a car loan for a grandchild(since repoed with $8,000 deficiency) now the family is squabbling and thinks the debt should be charged against the share of the parent of the grandchild. Of course, the will says all valid debts paid first. just a case in point.