Avoid the Problems that Can Come with Cosigning Loans by Kathleen Marteney, CRPC

Cosigning a loan for a friend or family member can spell financial disaster and ruin an otherwise healthy relationship. While it is not unusual for parents to cosign for a child’s student loans, car loans or even a mortgage, doing so can damage parents’ credit scores and leave them liable for paying off the entire amount of the debt plus interest.  Before agreeing to cosign a loan or serve as a grantor for someone else’s debt, consider the following facts:

• If the primary borrower defaults on a loan, the lender has the right to go after the cosigner for repayment and may go so far as to garnish the cosigner’s wages. Should the primary borrower pass away, the cosigner may be on the hook to pay off the outstanding balance of the loan, plus interest, late fees and collection costs incurred by the lender.
• The cosigner’s credit report will include the loan, line of credit or debt for a minimum of seven years. Should a primary borrower make a late payment or defaults on a loan, it will be reflected on the cosigner’s credit score, and potential lenders may view the cosigner as a credit risk.
• Guaranteeing a loan for someone else requires a great deal of faith and trust in the borrower. Know the primary borrower and consider why he or she may be asking you to cosign. Is he or she just starting out and lacking a credit history? Or, is your signature required because he or she is a credit risk?
• Consider alternatives methods of support, such as lending or gifting the loan amount directly to the borrower to avoid any risks. If your child lacks a credit history, you may consider adding him or her as an authorized user on your credit cards or applying for credit in the child’s name and paying the charges that he or she incurs.
• Read loan documents before signing them, monitor the loan or credit payments and keep communications open with the borrower to ensure that he or she does not go into default.
• Get out of the loan by having the borrower refinance it or close the line of credit once he or she builds his or her credit score.

The professionals with Provenance Wealth Advisors work with individual investors, families and businesses to navigate through complex risks in order to build and preserve wealth for multiple generations.

About the Author: Kathleen Marteney, CRPC, is a financial planner with Provenance Wealth Advisors (PWA), an Independent Registered Investment Advisor affiliated with Berkowitz Pollack Brant Advisors + CPAs, and a registered representative with Raymond James Financial Services. She can be reached at 800-737-8804 or via email at info@provwealth.com.

Provenance Wealth Advisors, 515 E. Las Olas Blvd., Ft. Lauderdale, FL 33301 (954) 712-8888.

Kathleen Montgomery is a registered representative of and offers securities through Raymond James Financial Services, Inc., Member FINRA/SIPC.

 Raymond James is not affiliated with and does not endorse the opinions or services of Berkowitz Pollack Brant Advisors + CPAs. PWA is not a registered broker/dealer and is independent of Raymond James Financial Services. Investment Advisory Services offered through Raymond James Financial Services Advisors, Inc., and Provenance Wealth Advisors.

 This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Any opinions are those of the advisors of PWA and not necessarily those of Raymond James. You should discuss any tax or legal matters with the appropriate professional. Prior to making an investment decision, please consult with your financial advisor about your individual situation. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete.

To learn more about Provenance Wealth Advisors financial planning services click here or contact us at info@provwealth.com

Updated on April 14, 2023