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Cosigning for your Child ?

November 15, 2010

I was lucky that my children were grown and almost out of college by the time this recession hit. Today is more difficult (financially) for parents to decide what they should do or not do for their kids. As kids approach adult-hood they may need something more precious than your money…your signature. Most students under 21 can’t get a credit card without an adult consigning, thanks to recent legislation. And young people without credit histories or well-paying jobs often can’t rent an apartment or borrow money without a parent’s help. If they can get loans on their own the rates are usually pretty high.

Should you cosign for your child? Only if you are prepared for the risks. The Federal Trade Commission estimates that three out of four cosigners are asked to repay loans because the primary borrower has defaulted. Here’s how to draw the line and when to sign on it..Bunch of Kids

  • Pretend You Are The Lender: You may know your child to be trust worthy, but that doesn’t mean he/she is not a default risk. Find out why he/she is required to have a consignee. Then ask the same questions the lender or landlord will: Can your kid afford this obligation? How much of his/her pay will it represent? Etc.
  • Understand The Risks: Forget the notion that you are secondary when you cosign as creditors and landlords WILL come after you if your child fails to pay the bills. So it’s best not to say yes unless you can pay the bills yourself.
  • Limit Your Exposure: If you decide to cosign, take precautions to curtail losses. Make sure the limit on the credit card stays low; on a lease get the parents of your child’s roommates to cosgin with you; if you are buying a car make sure your name is on the title so you can sell it if he /she stops making payments.

It is a big decision to cosign for your kid and in the economy that we currently have it is hard to say no. At GAI (www.gunwel.com) we can assist you in these decisions. It is always easier to tell someone that your accountant said no rather than say it yourself. We can be there for you. Call us today at 212-979-6830 or stop by for a visit. And remember, saying no doesn’t make you a bad parent. See you soon!

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