Updated: 2/10/2011 11:30 AM ET|
Should you co-sign for your parents?
Middle-aged parents who've lost their jobs or savings are turning to their adult children for help. Plus: 6 things to ask before agreeing to co-sign.
It's almost an American tradition: Kids in their 20s without credit histories have long turned to their parents to co-sign for them -- for a first credit card, a car or an apartment lease. Now the credit crisis is turning that tradition on its head.
Financial advisers, credit counselors and lenders across the country say they've seen a surge in middle-aged parents with damaged credit who have asked their adult children -- usually in their late 20s or early 30s -- to co-sign loans and leases for them.
"I'm seeing this a lot more now than I did two or three years ago," says Laurie Giles, an elder-life-planning attorney in Shelton, Conn., and the author of the "What Now?" book series. "A lot of times, it's parents who had stable jobs for 20 or 30 years who got used to living on credit. Then they're suddenly downsized, and they don't have strong savings built up, or their savings went down with the market. And their house isn't worth what they thought."
No one tracks statistics on how common the practice is, and most lenders consider such information proprietary. But LeaseTrader.com, a nationwide car leasing marketplace, reports a 29% increase over the past two years in the number of parents asking their children to co-sign for them when shopping for a car lease.
"These are people who can afford to take over the lease payment but have issues qualifying for credit," says Sergio Stiberman, the CEO and founder of LeaseTrader.com. On average, the parents who get help from their children are taking over a payment of less than $399 a month, he says.
Most loans small
The kids-helping-parents practice is most common with smaller loans such as those for cars and furniture, and for apartment leases -- not for mortgages, credit counselors say. Parents are also asking their grown children to co-sign on low-interest credit cards they can't qualify for by themselves. Some are so desperate that they secretly steal a child's identity to qualify for credit, says Elizabeth Schomburg, the senior vice president of Family Credit Management, a Chicago nonprofit credit counseling agency.
So what should you do if your parents come to you with a request for help? Tread carefully, experts say. Before you co-sign, make sure you consider the implications. (See the six questions to ask before you say yes at the end of this article.) Then be prepared to pay if they can't.
"What children have to be very aware of is that this can backfire on them," says Bruce McClary, a certified credit counselor and spokesman for ClearPoint Credit Counseling Solutions, a nonprofit in Richmond, Va. "Just because you love them and trust them, you can't predict their financial future and how they'll react if they run into a tough spot and can't pay. Then it's on you."
Guard your own credit
Even if your parents make all their payments on time, the decision could still hurt you the next time you need credit for yourself -- if you're trying to get a home mortgage or a car loan, for example.
At CredAbility, a nonprofit credit counseling center based in Atlanta, one client who was about to buy her first home came in asking why her credit score was low, says Mechel Glass, CredAbility's director of education. The woman had a car loan, very little credit card debt and made all her payments on time, Glass says. But she also had a $10,000 loan she had co-signed for her parents.
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I respect everyones comments to love and and make commitment to support parents, but (always a but)
As a parent myself, I would never ever burden my children. We are suppose to be making there lives better than our own.
I have had this situation with my in-laws and (every situation is different of course) found myself avoiding the situation until a brother law took this burden on.
I had many good reasons as follows:
- They spent money with no concern to save or for the future.
- they had no problem taking trips and going to casinos
- Father in-law worked but mother in-law wouldn't (?)
- Loan for significant amount (~100k)
- I believe people should live within there means (wish others and especially government believed this as well)
- I HATE DEBT (DEBT IS EVIL and the Chinese will own the United States) They are smarter than attacking us, just buy the USA.
Don't take me wrong, I would feed then and house them but not support them to have BIG FUN.
I love my Kids and will sell all my belongs before ask them for money.
I thought a parents role was to guide their children and help them to learn financial responsiblity. Yet this Hipocrit baby boomer generation just continues to break all the rules I guess.
Family members caring for and helping one another is one thing. I moved in with my parents when my father was laid off and I pay them rent which helps with the mortgage and food. Though I would gladly co-sign a loan for them if they asked, on a matter of principal I know they simply never would. It's a matter of pride. Where has the pride in our socity gone, when it becomes acceptable to burden ones children with your own irresponsibility?
Bottom line. If you are reading this, and you have allowed your child to do something like this for you. Congratulations, you have failed.
Isn't it ironic that this is the same advice parents get when being asked to co-sign for their kids. Ultimately, what this says is that helping family is either what you do or don't do, it doesn't matter whether it's parents, kids, grandkids, etc.
I do believe that when kids are asked to help their parents, and kids are considering the risk, they should stop and think about the fact that in all likelihood, their parents put themselves at huge financial risk for 22 years (assuming college) or more by having them, raising them, paying for college, etc. Many parents would be far better off financially if they hadn't done as much for their kids as they did. And many of the kids would be far worse off if their parents hadn't taken the risk. So, if you parents aren't, in general, irresponsible then I believe you have a moral obligation to pay them back for the years they accepted that risk without complaining.
Of course each individual situation is going to be a little different, but as a general rule, bite the bullet and give up some of your discretionary spending and help your parents. You probably owe much of your current success to their willingness to take financial risks for you.
I have seen it all now, the down side of morality in America. Of course we can thank our beliefs in the all mighty dollar for this. This combined with the concept that we are all loners and make our own futures and success. I think some of those bright and supposed brilliant minds graduating now help make society in America believe this is true, or is it the teachers putting this in our kids’ minds. Damn morality as long as you ethically know what you’re doing wrong, biting the hand that got you there not to mention just plan decency to mankind for the all mighty dollar, you are good as long as your or the company you’re with is successful.
Let’s look at two perfect examples of success due to family. Michael Dell and Bill Gates, supposed guys who made it to the top all on their own, of course those of us who take the time to read their road to success will find that family was one major key driver that helped them get their big break.
Counties like Mexico, Chili, Chine, Indonesia, and so forth, the family unit is the most important thing. First, second, and even third generations live together and help each of the next generation aspires beyond the current generation.
So when I read this article, all I see is the demoralization of Americas. The person who wrote this article should have put more thought into what they are saying. If their goal was to just spew out the same corporate propaganda, great job, you suck as person morally but you made your company happy.
Just to tell you a little about myself, I am in my late forties. I work for a company that drives for the all mighty dollars, but I do not let this define my morals, especially when it comes to my family. I have been fortunate enough to not have been laid off. I still help my kids financial at college and home. I try to instill in them that family is the most important thing, and we are here to help for one another. I tell them their goal in life is to give or help society in some way that makes them proud of themselves. This article and the tone it was written in is just cold and demeaning, and I would be ashamed if one of my kids wrote it.
this article makes me want to scream! A parent has doled out $$ for that child from everything from gas $$ in high school, sports, dates, proms, insurance, college (if they could afford it) more than likely rent & the list goes on & on. The above things are things that don't HAVE to be paid for such as food, clothes & a roof over their head.
Now that the parent needs help it's typical of the "child" to say get lost! It's even worse to have an article tell them "BEWARE! BEWARE!" And Will71701 I know MANY MANY Latino families whose children tell their parents to get bent! So....let's not even go there!
We have doled out $$ to our 26-year-old for years thinking it would help her get on her feet. Now she has a baby & the attitude "my parents helped me in the past they'll continue to". Wrong! She has plucked the $$ tree dry. She can now try to raise our grandbaby on $400 a month & $300 a month in food stamps. Yes. Be angry She's living off your tax dollars!
Shortly before the big crash my elderly father was widowed and left with a house he couldn't afford alone. I help him to refinance the house and split the payments with the understanding that I would take it over completely after my kids were out of high school and he longer needed the house. I didn't realize until later that he had a gambling problem and lost all of the cash from the refinance and ran his cards way up to cover his expenses. I helped him out again, transferring the balance of his biggest cards to my lower interest cards, maxing them out. Another year later I'm hit with another blow and he has ran his remaining cards up even higher and can no longer make co payments on the house and moves out. This forces me to fix up the house and find a renter. I really lucked out and a week before I would have defaulted on the loan I found perfect renters who have been in the house for over a year now.
My credit is going to be seriously damaged for a few years, but this situation has really hurt our relationship. I still love him with all of my heart, but am seriously disappointed with his choices as if I was now the parent talking about one of my kids... I just refer to it as parental support.
I am in a real estate related business and have seen numerous cases of 'when co-signing goes bad' scenarios -both parents signing for kids and kids signing for parents. I would never suggest anyone co-sign for anybody for anything unless it's a life or death situation. Even when it comes to loaning money to my kids, I did what my folks did with me and my 7 sibs- if you are going to loan money like a bank then act like one. Have a note signed with a payment schedule and collateral. When I needed money for closing costs for a home after a job transfer, I put my car up for collateral, signed a note and had a payment schedule with my folks. I would never ask my kids to co-sign for me as I do not want to out them in that position.
Co-signing a debt for anyone including spouse, kids and parents is dangerous. There is a strong reason why someone is not qualified for a loan. Don't try to overrule those facts with emotions. Guard yourself financially, especially in this country where even $100K savings can evaporate in 3 years without a job.One can still live a decent life in this country with no car, no credit cards, not owning a home. Got to make few adjustments in lifestyle on how close they can stay near work and walk, use public transportation, use cash to purchase needs,rent a small one bedroom apartment, etc.
While I love my mother, money is money. Co-signers are always the last ones to know when a loan they co-signed is in default. When my mother had problems with the IRS, I purchased an inexpensive new car for her in a price range I could afford. It was contingent on her making a deposit in the bank account I open for the car payment. I got the bank statemet every month and I was able to contact her if the payment was not made. Because I set it up like that she paid the note on time every month and was able to trade the car when her her credit was better. I just figured that if my credit was good enough to co-sign it was good enough to buy a car out right and make a payment agreement with her. I retained a copy of the car keys in case she decided making payements was not that important. In addition, I paid her mortgage for 6 months. It was tight and my family passed on a number of items. In the end she had better credit and I was able to keep my good credit!!!!! Fortunately that was 15 years ago and I can't repeat that failed experiemnet if she finds herself in the same bad financial position. In fact, she told me how much she has for an emergency if the government closes down and it impacts her Social Security check. As an only child, my husband and son should not have to make the ultimate financial sacrifice due to poor planning on my mother's part.
As a result of the mess 15 years ago she has worked hard to stay financial viable plus we try to have financial conversation all the time. If it's important to ask for financial help after the fact, it more important to discuss financial matters before help is needed.
Generally, lender's require someone to co-sign because they don't believe they are going to be repaid. Plan on making the payments if you do co-sign and know that it will damage your relationship with your parents.
You are better off giving them the money.
"There is no such thing as good debt."
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