'Son, Can You Spare a Signature? Kids Co-Sign for Credit Strapped Parents


"If you think it's a wise thing to do, then, of course, go for it but you still must say, 'I'm going to be just fine if I have to step in and make this good because that's the bottom line.' The bottom line is you've got to be ready to pay off that note."

For Lee, there was no hesitation. "When I needed him, he was there for me," Lee says, adding that he pays the majority of the $280 car lease.

The Good, the Bad and the Ugly

Of his decision to co-sign rather than buying his father the car, Lee says, "it's going to help him begin to rebuild his credit.

"I didn't want everything in my name. He's on the lease because I wanted his name on the registration, and I wanted him to be part of it because it's his car," Lee adds.

But not all families handle the arrangements so effortlessly.

"I need opinions please; I feel forced to co-sign on a mortgage for my parents ...," a Twitter user wrote a week ago, sharing in anonymity the qualms many children face when asked to co-sign.

From another user: "... More important things to worry on. Dad wants me to co-sign on a car."

And it's no cake walk for the parents, either.

"A parent having to swallow very hard and ask their adult child to co-sign for a car loan means the parent is in financial distress and not able to obtain the loan though their own credit worthiness," says Gail Cunningham, vice president of public relations for the National Foundation for Credit Counseling, a financial education and counseling service based in Silver Spring, Md.

The parent-child relationship generally "has the parent being in charge and child being obedient," says Theodore Connolly, author of personal finance book "Road Out of Debt."

Co-signing, he says, unwittingly creates a master-servant situation, and the person that owes the money falls into a different status. "A child lending to a parent is almost reversing the relationship and could cause problems," he adds.

A few experts were split about how to seal the deal, but most agree that parent and child should be prepared to pay if there are any hiccups during repayment of a loan.

That's why Lee and his father picked a Toyota RAV4 compact when deciding on a new vehicle.

"Of course, I'm not going to take a lease for a brand new Mercedes," Lee says. "I'm not going to take a lease that's going to destroy my life."

But any child who resists should consider offering alternatives to avoid souring the parental relationship, some experts say.

Declining to co-sign can be "explosive when you include the family dynamics of the situation because we're not logical with this decisions," South Dakota financial planner Kahler says.

Remember that you're in an adult role, not a child's. And instead of simply declining, explain the downside and ask if there are other ways to help.

Given that his own father almost went bankrupt after co-signing on an employee's business loan, Kahler suggested offering to give the item to the parent as a gift, or putting the loan in the child's name to give complete control of the assets.

While there may be no way to avoid upsetting your parents, there are valid reasons to decline, credit counselor Cunningham says.

"If your mom, dad or parents have demonstrated financial irresponsibility their whole life and you feel you're enabling them by co-signing, speak the truth in love," she says. "Or, if opening a new line of credit could impact your credit score."

Lee's solution was to minimize the impact.

"We looked at a short-term lease and not something like 36 months," he says, "so I made my risk much smaller."

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