What to Consider Before Cosigning for Your Child

Financing anything is tricky, figuring interest rates, credit scores, and terms is a confusing job for anyone. Cosigning is even harder, especially when your child's is the other signature on the document. Of course, you want to help them financially in any way you can, but when you cosign you run the risk of ruining your credit forever if they slip up. Whether it's time for your teenager to buy a car and hit the roads, or your baby is all grown up and headed to college, you should be ready to consider the benefits and risk of cosigning a lease, auto loan or otherwise, with your child.

The Benefits of Cosigning

Helping Your Child Establish Credit

Breaking into the adult world comes with stipulations, one of the biggest being your credit score. Having good credit is essential if you want to finance anything, rent a home, or take out a personal loan. Starting to build credit from scratch isn't easy, but parental support through cosigning can be very helpful in securing a loan and establishing credit.

Credit Impact

It's a win-win situation if you cosign for your child and they're responsible with the loan. Not only will their credit improve, but it will positively impact your credit as well. The longer the terms are, the greater the positive impact will be. You just have to ensure your child's financial responsibility and stress to them the importance of on time payments.

Better Terms

If your child doesn't have years of established credit, and they attempt to take out an auto loan, they could run into a high APR nightmare that prevents them from being able to afford a car. If your credit is established and good, you can ensure your child's loan terms will be better than they would get without your cosign.

The Risks of Cosigning

Credit Impact

The credit impact of a cosigned loan can go well for a parent cosigning for their child, but as with any cosigner, it has its risks. Cosigning makes you ultimately responsible if the debt isn't paid, which can permanently and severely damage your credit score. If your child isn't responsibly making payments on time, you'll surely reap the consequences.


There's also the worry that you'll ultimately have to pay off a loan that your child was irresponsible with to weigh into the equation. Can you afford to take on the full responsibility of the loan payments if your child defaults? If not, consider options other than cosigning.

Knowing Your Child's Financial Habits

Cosigning for your child can go one of two ways, and it all depends on your child's financial habits and level of responsibility. The parents ultimately know best when it comes to their child's responsibility, and only you can know whether your child is ready for the responsibility of on time payments and credit or not. Consider the benefits and risks of cosigning for anyone before you sit down and have a chat with your child about credit, loans, and responsibility.

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