Co-signing loans can be bad business
This just in: No good deed goes unpunished.
“If you co-sign with someone on a loan or a credit card, you’ve got a 40 percent chance of losing money and a 26 percent chance of damaging your relationship,” said Matt Schultz, senior industry analyst at CreditCards.com. It commissioned a survey of 2,003 adults of whom 388 had co-signed a loan.
The conclusion: Never help anyone ever.
“Twenty-eight percent experienced a drop in their credit score because the other person paid late or not at all,” Schultz said.
That drop in credit score can cost a co-signer for decades, worsening the terms of everything from car loans to mortgages.
Jill Schlesinger, a CBS News business analyst and certified financial planner, said that perhaps it’s OK to help people out in certain circumstances.
“Your child, who has a very good job but doesn’t have enough credit history to purchase, say, an apartment? OK, I can live with that,” she said.
Co-signers might be wise to take a trust-but-verify approach, demanding to have access to all relevant accounts so they can monitor the finances of the person they’re supporting.
In general, Schlesinger said, “If someone cannot get a loan, usually there’s some reason behind it. If a lender isn’t willing to extend money, why should you?”
Ultimately, don’t offer to help someone get a loan unless you’re willing to pay that loan back yourself.
Stories You Might Like
There’s a lot happening in the world. Through it all, Marketplace is here for you.
You rely on Marketplace to break down the world’s events and tell you how it affects you in a fact-based, approachable way. We rely on your financial support to keep making that possible.
Your donation today powers the independent journalism that you rely on. For just $5/month, you can help sustain Marketplace so we can keep reporting on the things that matter to you.
