Hesitant To Co-Sign For Your Kid's Personal Loan? A Few Do's And Don'ts To Help Make Up Your Mind

Whenever your child needs help, your first reaction is probably to jump right in and lend a hand; however, when it comes to your adult child's finances, it's not always best to be quick to lend a hand. Co-signing for their personal loans may provide them with a boost in life, or it could just set them (and you) up for failure. Despite wanting the best outcome, you have to take it a step further and ensure the best outcome, no matter if that means helping or not.

The Definite Do's

Helping your adult child obtain their first real loan can have very beneficial consequences, if the situation is handled properly. Your generosity in co-signing might allow for a first apartment or automobile, setting your child on a sensible course for the future. Still, there are many angles to consider, as you think about your decision.

• Make sure your child is ready for the responsibility of a loan.
• See that they have the means to repay on time.
• Research the loan you apply for together.
• Explain the terms to your child, so they're clear on what their obligations are.
• Ask your child to write out a budget, including allocating funds for repaying the personal loan.
• Do consider the purpose of the loan, and if it's frivolous.
• Do make sure you can absorb the cost of the loan, if your child defaults.

The Positively Don'ts

There are times when it's not appropriate to co-sign for someone, no matter if they're your child or not. Sensibility must come into play and while you may not hesitate to put your child first in other matters, when your financial future is at stake, the possible negative aspects or co-signing a loan must be examined thoroughly.

• Don't co-sign if you're uncertain about your child's ability to repay.
• Back out if your child seems to think you'll take care of the personal loan, no matter what.
• Do not co-sign, then leave the situation to chance; stay involved and coach your child, instead.
• Don't accept terms that aren't reasonable, just because your adult child has no established credit.
• Don't underestimate what will happen to your credit rating if the loan isn't paid.
• Don't feel you have to co-sign, just because your child asked.

When your adult child asks you to co-sign a personal loan for them, it's a big deal. Your child is well beyond the allowance stage and you don't necessarily have to bail them out of every bind anymore, but if that loan is going to do good things for your child and you believe they can handle repaying it, that loan could be the start of a very smart financial future for your child.

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