Happy Friday everyone! I’m wondering if anyone has experience with co-signing. Have you ever been burned by co-signing a loan for someone? Or have you co-signed and had everything work out fine?
This week, I answered a letter from a mom whose 25-year-old daughter just started working. Her daughter wants her to co-sign for an $800,000 home. Yikes! https://www.thepennyhoarder.co…o-sign-on-800k-home/
I usually tell people not to co-sign because I’ve heard so many horror stories from people whose great credit was destroyed because they tried to help a loved one.
On the flip side, every so often, I get a letter from someone telling me about a time when co-signing worked out. For example, another mom recently wrote me to say that her 22-year-old son was buying a used car. He had no credit history and would have paid over 20% interest. She co-signed, he got a lower interest rate, and he made all the payments as agreed. I’m sure there are lots of stories like this. I just don’t hear that many of them because most people don’t write an advice columnist to say that everything’s going great.
I think when co-signing makes sense is when you’re doing it for someone who lacks a credit history. But when the person has a terrible credit history, I’d be extremely cautious.
What does everyone think: Is co-signing ever a good idea?
Co-signing is a bad idea in my opinion, for something that is expensive and could place a burden on the parent, I co-signed for my kids’ college loans, thinking I was helping my child when in fact I was hurting myself in the long run. My child dropped out of college leaving me to pay back the loans.
Co-sign for a used car, no problem. Co-sign for an $800,000 house, a Major nightmare waiting to happen. Did the womans’ child graduate number one in her class from an Ivy League School ? Will said child have a job paying $250,000 a year or more money ? Will that child be around in twenty years to look after her own mother should the mother wind up with a medical problem like the woman’s own mother ? (yes I clicked your link and read the story) Something like that house mortgage is beyond YIKES !!! that is downright absurd to ask of her mother, My parents would’ve told us kids No way in Hell, you’re on your own and you’ve got to be crazy to pay that much for a house. The 25-year-old kid should grow up first and experience what it is like to live and survive on her own without the mother’s help.
Typically, I’d say co-signing is a very, very bad idea. With that being said, I’ve done it before and all went well. I only did it because I knew the person well. I’ve heard the horror stories as well. If you’re not prepared to take on someone else’s debt or take a serious hit to your credit, DON’T DO IT! Even if the person has every intention of paying you back, they could get sick or lose their job or something similar and you’ll be on the hook for that debt.
I would never cosign, it makes you legally responsible if the person doing the needing or wanting does not pay what is due. Plus, you could have problems if they are late in paying or skip payments, interest and finance charges accrue, and here comes your obligation to double up and ante-up. You have a new burden and wonder where it will end.
Even if it is a car you have co signed on, it could be a hot mess. You may have to repo the car or sell it back to the bank and pay the shortage just to get out from under the debt. What do you do it the car breaks down or someone has an accident? Or they drop their insurance?
One possible end result other than the financial, is the loss of a friend or estranged from a family member. Then you’ll be the bad guy. Regrets and remorse.
I’ve had 2 completely different outcomes, and both were my children. I took out a Plus loan for our son. He had a full scholarship but needed money for living in the dormitory and food. The 1st year was great. The 2nd year he started partying and had failing grades, lost scholarship, dropped out of college. During the partying phase he had received 3 credit cards, and of course, maxed those out. He came back home to live with us rent free and got a job. I had a credit card with a 0% balance transfer for 18 months. I helped our son negotiate pay off at 50% for all 3 credit cards (most of the forgiveness was accumulated finance charges and late fees).
This turned out okay as our son paid me back every bit of the credit card balance but it took 20 months so 2 months did have interest added. He then began paying off my plus loan. To this day, 20 years later, he has never had credit problems.
Our daughter was a completely different scenario. I cosigned for a new car and it was a 3 year loan. She paid the first 2 years but I had to pay the last year to save my credit. Then I was stupid again and consigned a retainer for an attorney and guess what?! I paid for ALL of that.
Fast forward 20 years, she has refused to pay me back, filed chapter 7 twice, and still has credit problems. A few years ago I needed a place to stay for a couple weeks and I asked her if I could stay with her. She told me she didn’t have room. I told her I would sleep on the couch or even the floor, but she couldn’t/wouldn’t help me out.
My best advice is to give money with no expectation of being paid back or do not cosign for anyone. In my case, one child appreciated the help and paid in full and the other one had a sense of entitlement, never paid anything back, and wouldn’t help me when I needed it.
Hi All…I’m sorry to say that I have a nightmare story. My niece n I were family and best friends our whole life (1.5yrs apart)I was her 3 kids, 2nd mom! I could spank them but grandparents were forbidden! Hope you get how close we all were. 30 years later after I had 3 of my own, her son approached me about “loaning” him $ for his computer chip co. for expansion. I had $50,000 put away for my retirement and thought it would kill 2 birds…Never saw a penny back and all I had were the checks I had written to him. I was sooo heartbroken and devastated that I just kept trying to reason with him bcuz it was inconceivable to me till the statute of limitations came n went.
Now…I have nothing and barely able to feed my dog and myself.
Back to the story at hand, I would NOT loan anyone without an ironclad contract that they must initially pay for the entire pre-loan process and NOT on a $800,000. house. U didn’t mention anything about where when and how much money ur daughter makes.
The crux is that we don’t have enough information about ur daughter for anyone to truly even guess!
An iron clad contract won’t do any good if they file chapter 7 bankruptcy so even that won’t protect you because secured debt may be protected somewhat but unsecured usually get pennies if anything at all. Please DO NOT cosign unless you are willing to forgive the debt if you get stiffed.
Wow, I’m so sorry to hear such sad stories! But after reading your stories, if anyone asks me to co-sign for a loan, I’m going to say that I’m sorry, but I just can’t take the risk. So, thanks to everyone for providing such a good warning about what can happen!
i have cosign for my daughter and son in law, i have to say, they paid off the truck, and they now have thier own credit . i would only do it for them, no one else, and it paid off for them
I never really liked the idea of co-signing and have never done it except with letting certain people be authorized users under my credit cards (family only)
But after one family member made payments on a card with a fraudulent account leaving me with $30K in returned as unauthorized payments, I probably will never do anything like that again, not even for family…
Co-signing is a bad deal for credit, I was burned by sister, she has even said it wasn’t her fault the car was no good, that’s why she quit paying on it and it got re-poled. It sure hurt my credit and she’s not worried about it.
Never ever cosign, for anything! Either give the person money as a gift or do nothing. I am leaning towards giving nothing. That way you will teach the person the value of a dollar and hard work.
My late Mother co-signed my sister’s mortgage. OMG, what a nightmare. It took years to close out Mom’s trust because of that. Mom never learned over the years that you are not helping your kids by bailing them out financially.
I co-signed a car for my niece after she showed be 2 consistent years of stability and responsibility. I am also in a position to take over the payments and repo the car if she decides she doesn’t want to pay.
A 25 year old that wants an $800K house is already a red flag. So I wouldn’t cosign that at all.
Some cases I would co-sign, like the author said, is if they’re lacking credit history. OR if for some reason, let’s say, an apartment building just requires co-signing no matter what. But even if they lack credit history, I’d probably want to be sure of their finances to co-sign. For example, if they’ve got a stable job where they’re not about to quit any time soon (i.e. just started working) and their salary can easily afford the rent, and I know them to be a moral and responsible person all along, then sure I’d co-sign to get them in the game.
But outside of a lot of due diligence, I think co-signing is likely to be throwing money away. Might as well just buy Gamestop OTM calls at that point lol.
