Tuesday, August 30, 2016

Co-Signing On a Loan or Credit Card: Should You?

Don't do it, don't do it, don't do it.

A recent survey from CreditCards.com of about 2,000 adults found the following:

     Money gone:   38% of co-signers ended up paying some or all of the loan or credit card bills -- because the person they helped out... didn't.
      Credit scores down:  28% had their credit scores affected negatively because the person they co-signed for didn't pay...or was late.
     Relationships affected:  26% said their relationship with the person they co-signed for was no longer as good.

Twice, we've been asked to co-sign for a loan. The first time, we did it -- because the person was young, a relative, and needed our help with school loans.  The second time, we didn't. That person was a casual friend I worked with. I liked her so much, but hadn't known her that long. She asked me to co-sign for a car loan; I regretfully said no. Soon after, she disappeared from my life. (Would that have happened if I HAD agreed to co-sign?)

And the school loan we did co-sign for?

We regularly were forced to ante up loan payments now and then when our much-loved person didn't pay. (The loan people immediately called us next when the payment date passed.) Brief periods happened when she was back in school, and the loan went on temporary hiatus...but the loan people were soon back on our doorstep with the next 'break' from college. 
    Finally, all was quiet. Our loanee assured us that she'd taken care of things, and all was well. Then we got a notice: our credit scores had dropped nearly 100 points for non-payment on the loan. It was past-due three months.
    Every month, for the past two+ years, our bank account gets docked $50: the price for our credit scores not taking another hit. (They were near-perfect before that.) 
     The loan will be paid off next March. I am hoping that when it's gone, our credit scores will go back up to what they once were. They've only recovered a little from the initial hit.

And if our young person came and asked us to co-sign again?

What do you think?

Our experience was with school loans -- something parents go through a LOT with their children. Like this poor lady.

It happens with co-signed credit cards, too.  In fact, the columnist mentioned here has posts crammed with people who co-signed, or allowed friends, partners and family to be 'authorized users' on their accounts -- and now regret it.

Sure, it may be ok. The person you've just entrusted your credit and reputation to actually makes the payments regularly. They may do this. It happens. 
    If you really want to help without endangering yourself, take the real risk -- and loan them the money directly. We've made loans to relatives and a friend -- and we got the money back. Reluctantly, as it turns out, in two cases...we had to ask for it, but we got it. In a third case, the money was paid promptly and on time, without asking. I'd loan money again in a flash, any time, to that third person.
     We've also borrowed money from both sets of parents, as well as our daughter -- and paid back every cent on time, plus interest. 
     You may not have the funds to spare. In that case, the answer is clear: Don't do it.
     But if you do have the cash..

     Worst case scenario: you don't get your money back.  Lesson learned: don't loan any more than you're prepared to lose -- permanently.

The person may have the best intentions. (Then again, they may not.)
They may be someone you love dearly.
    But if something goes wrong -- they change their mind, lose their job or have serious medical bills -- you're the one on the hook for that debt. No matter what.

After all this, do you still want to help? Then loan them the money. That way, if they don't or can't pay, you won't ruin your own credit, and end up paying the bill for years, as well. It's not a fun feeling.

Trust me -- we know.

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