Is Co-Signing On Loans Fatal To Friendships And Family Ties?
Conventional wisdom says that you should not let a sociable conversation turn to the topics of politics, religion, and sex, although it seems that fewer and fewer people are observing this rule these days. Meanwhile, people hesitate to talk about their finances, even though evidence suggests that doing so can only open the door to greater economic prosperity. Asking a friend or family member to lend you money is a sensitive subject; an unpaid loan between friends can quickly turn them into enemies. There is a reason that, when they can afford it, people borrow money from banks and credit card companies instead of from family and friends. Asking a family member or friend to co-sign on a loan can also threaten the relationship, even though it can be a quick fix when you really need to finance a car purchase or open a credit card account. Money comes and goes, but family is forever. What you need now is not a family cosigner, but rather a Boca Raton debt lawyer.
What Does It Mean to Co-Sign on a Loan?
When someone co-signs on a loan with you, the lender uses the co-signer’s credit history to set the terms for the loan, and the co-signer is responsible for paying it back if you stop making payments. It is as if the loan belongs to the co-signer, and you have promised the co-signer that you will pay.
Most co-signers are older family members of the original borrower. Co-signing on car loans and credit cards is a popular way for middle-aged people with good credit scores to help their young adult children build their credit history.
Imagine that a 30-year-old borrower asks his 60-year-old mother to co-sign on a car loan for him, because his credit score does not qualify him for affordable loans. She signs, and everything is fine, but it can all fall apart easily. What if the borrower loses his job and falls behind on payments? Then the mother will have to pay. She has a good credit score, but her son’s monthly car payment is not in her budget. He may have to give up the car, or the mother may have to take money out of her retirement savings to pay the car loan.
Other Ways That Financially Secure Relatives Can Help Without Jeopardizing Their Own Financial Stability
In the above scenario, it makes more sense for the mother to give her old car to her son, assuming that the old car is paid off, and get an affordable loan for a new car for herself. While driving an old car for which he paid little or nothing, the son can save up money for a down payment on his next car. The down payment will get him a more affordable loan, even if his credit history is limited.
Work With a Debt Lawyer About Accessing Credit When Your Finances Are Strained
A South Florida debt lawyer can help you find the most affordable ways to borrow money in your current financial circumstances. Contact Nowack & Olson, PLLC in Boca Raton, Florida to discuss your case.