My neighbor came over this afternoon to visit for a bit, and she related to me a financial horror story. She has a daughter who is in college in California. Her daughter needed a place to live. So my neighbors did what any loving parents would do. They co-signed on a year long apartment lease for their daughter.
Unfortunately, they learned the hard way that this isn’t a smart thing to do. The daughter’s rent is $1400 a month. Daughter has a roommate that was supposed to pay half the rent each month. You can guess the next part. That’s right. Roommate hasn’t been paying the rent.
Now my neighbor and her husband are stuck with a $1400 a month payment until August. This is in addition to the rent for their home here in Oregon. They are evicting the roommate, and they are hoping their daughter’s more mature, hopefully more responsible friend will move in and start paying rent. But if she doesn’t, they’re going to have some mighty high payments.
Never, ever, ever co-sign for a loan/lease/anything else unless you are fully prepared to take on the entire payment. I don’t care if the person who wants you to co-sign is your child, parent, grandmother, or the most honest person from your church. Life happens, and if that person is unable to pay, you’ll be stuck with the bill. Don’t learn the hard way.
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I agree 100%. My irresponsible sister went to my parents, grandparents, myself, and all of my adult siblings to try to get one of us to co-sign a car loan a couple of years ago. Luckily, we all declined. She eventually bought way too much car for her income at a criminally high interest rate, totaled the car, and injured someone. All without having car insurance!
I guess you should (mentally) consider it a gift. If you never have to pay, then that’s just a bonus.
Mr. MoneyDummy often has to deal with people who cosigned on other people’s loans and are now being hit with the loan. He always wants to tell them, “If a BANK, which is constantly CLAMORING to lend people money, was so sure that your friend/daughter/ex/parent/sibling wouldn’t pay that they didn’t even want their business, what made you think that cosigning for the person was a good idea?”
*Sigh*
@E.D. – I’m sorry to hear that. It’s a good thing none of you co-signed!
@Plonkee – You’re absolutely right. If you’re going to so-sign, you have to figure that you’ll be giving the entire amount as a gift. Then you won’t be disappointed when you have to pay.
@MoneyDummy – That is a very good point! I wish more people would think that way!
Why didn’t the roommate cosign?
A friend of mine cosigned for her son’s car. He stopped making payments, so now she gets to drive a brand new sports car around town. Yes, she repossessed her own son’s car, but if she was making the payments, she was going to drive it!
When my husband and I just got married, No apartment place would have taken us without a cosigner because we had no work history. Thank goodness his parents co signed for us or we would have had no place to live.
Good advice!
We have some loan programs where family members can co-sign for a child, BUT the parent is also an owner of the home, and generally considers it more of an investment on their part.
Also, if you co-sign for someone and then want to buy a house, if they haven’t been making the payment it will affect your credit rating. And finally, if they are making the payment, but you can’t qualify for your mortgage with that payment counting against you, you’ll have to provide 12 months’ cancelled checks proving who is making the payment.
I had a friend who co-signed for her boyfriend’s car. When they broke up, he quit his job, moved, and stopped paying for the car loan. She had to take up the slack and continue the payments while she tried to find a way out of the deal. It was a pretty horrible experience for her.
Now that I’ve heard these stories here, I’m definitely *not* co-signing on anything.
There’s so many things I would have done differently. But this is the key point of the story:
“Never, ever, ever co-sign for a loan/lease/anything else unless you are fully prepared to take on the entire payment. I don’t care if the person who wants you to co-sign is your child, parent, grandmother, or the most honest person from your church.”
I done it once, and I will never do it again. I could’ve sleep better investing in the stock market during a bear market.
Sometimes you have to standback and look at the situation if you have a 25+ child/sibling who has had their cars repoed and evictions and just is not responsible then say NO but if you have a responsible NEW adult who just doesn’t have enough credit history or rental history but have shown you that they wouldn’t just flake on you then I dont think that there is any thing wrong with co- signing for a responsible young adult who has shown that they respect you enough to not screw up your credit I know that I would never screw up my parents credit… I would find a way to make payments no matter what… a roomate not paying… loosing a job.. anything because I have that respect for my parents. Unfortunatly they do not understand that. So I had to find another place to stay and the places that you do not have to have a co signer are usually bug invested… far away… and just yuck!!! So I sugest if you feel like your kids respect you enough to not ruin your credit (it is all you have) you should give them a chance and sign
Wow I have read your article and by the way I found you website on Yahoo and I think after I read particularpost on you website especially this one I have my own comment about what should I comment on the next conversation with my girl friend, maybe tomorrow I will tell my friendsabout this one and get debate.
Impressive Blog here on the finance sector. I love reading blogs that have to do with business and finance, so thank you for keeping us up to date with your blog! Ill be coming back!
very intresting write up now to further my research
amazing post
Im almost 29y and I consider myself to be a responseable daughter to my parents. They co-signed an apartment for me 2 years ago and I was never late on a payment. Unfortunetly I live paycheck to paycheck. There is really no way to save money. My credit is horrible due to me being a teenager with a credit card my stupidity. I recently got a better job (payes better) Im slowly moving on up. I decided to move to a better town, but slightly higher housing. I asked my mom to co-sign for me again she said she would but wanted to know… If she co-signed and I still pay my rent on time (no late payments). Can she get a loan for a car if she needed one!?! How does her co-signing effect her credit if my payments are in good standing??? Please help
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