“Son, Can You Co-Sign My Loan?”

by | Nov 12, 2010 | Cash Flow, Fee Only Financial Planning, In The News | 1 comment

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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