3 Crucial Signs You Shouldn’t Co-Sign With Your Family Member
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You know that small voice in the back of your head that tells you not to do something? Along the same lines of lending money to family, you probably hear that when considering co-signing for a family member.
And you’d be wise to listen, according to experts.
“In my experience, co-signing a loan or lease for a family member can be a risky decision that many people underestimate,” said Shirley Mueller, finance expert and founder of VA Loans Texas. Below are the crucial signs for why you shouldn’t move forward.
Also here’s how to get out of being a co-signer on a loan.
They Have Poor Credit History
One of the biggest red flags, Mueller said, is if the person asking you to co-sign has a history of missed payments, high debt levels or poor credit.
“These issues often indicate that they may struggle to keep up with the financial commitment and as the co-signer, you’re essentially agreeing to take on their debt if they fail,” she said.
“I always tell clients that your credit and financial health should never hinge on someone else’s ability or inability to manage their money,” she added. “If you can’t afford to take over the full responsibility for the loan, you shouldn’t co-sign.”
Kevin Shahnazari, founder and CEO of FinlyWealth, agreed. “One significant sign to consider is the family member’s credit history,” he said.
If they have a history of late payments or defaults, he said cosigning could jeopardize your credit score.
“When you cosign,” Shahnazari said, “you are essentially taking on the risk of their financial behavior, which can lead to negative repercussions for your creditworthiness if they fail to meet their obligations.”
There’s Emotional Strain in the Relationship
Another major sign you shouldn’t co-sign, according to Mueller, is if your relationship with the family member is already strained or if you feel pressured into it.
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“Money has a way of complicating even the strongest relationships and co-signing can bring significant tension if things go wrong,” she said.
If they miss payments or default, she said it’s not just your credit that takes a hit, it’s the trust and connection you share.
“I’ve seen families torn apart because the financial strain from co-signing turned into resentment,” Mueller explain. “If you feel like saying no would damage the relationship, remember that it’s better to have a tough conversation now than to face years of conflict later.”
Weigh Your Own Financial Stability
“I’d caution against co-signing if you’re not in a stable financial position yourself,” Mueller said. “Even if you trust the family member to make payments, life happens and things like illness, job loss or emergencies can lead to default.”
Before co-signing, she recommended asking yourself: Can I cover this loan without jeopardizing my own financial goals?
“If the answer is no, it’s a clear sign to decline,” Mueller said. Instead, she said to consider helping in other ways, like assisting with budgeting or finding alternative financial solutions.
“It’s important to protect both your finances and your peace of mind while still being supportive in ways that don’t put your future at risk,” she added.
