Negative effects of co-signing a loan
On behalf of Bankruptcy Law Firm of Clare Casas on Monday, April 27, 2015.
Parents in Florida who are asked to co-sign a loan with their adult child may want to think twice before signing the paperwork. Although parents may be eager to help their child get a loan that they need, the negative consequences of being a co-signer may not be worth it.
Lenders only require a co-signer for a loan when they don't believe the prospective borrower will be able to make payments on their own. If the primary borrower on a loan misses payments, the lender may attempt to collect the unpaid balance from the co-signer. The lender could even end up suing the co-signer for repayment and having their wages, tax refunds and Social Security benefits garnished. Plus, each time a payment is missed, the co-signer's credit score will go down.
Even if the primary borrower on a loan makes each payment on time, the co-signer's credit score will still suffer as a result of signing their name to the loan. By becoming the co-signer on a loan, a parent will effectively have a higher debt burden in the eyes of the credit bureaus. Taking on a higher debt burden could lower the parent's credit score even if their child does not miss one payment.
Parents often agree to co-sign a loan in order to help their child raise their credit score. Rather than taking the risk of co-signing, a parent may want to suggest that their child take out a secured credit card instead. A lawyer may also be able to help someone who has financial management issues to come up with strategies for getting out of debt and raising their credit score.