Now that your child is venturing out into the world, they have to deal with adult issues such as working, paying bills, or applying for a loan. Your child might need a small personal loan to assist with getting into their place, a loan to pay for their education, or an auto loan so they can get from point A to point B for work or school. Here are three excellent reasons that you should co-sign a loan for your child.
Learning the process
There are a multitude of lenders on the market willing to offer loans to consumers. Your child might not find the loan they need from the first lender they come across but will likely find someone willing to finance the purchase. This can be exciting for your child, but if they don’t understand the terms or the loan process, they might sign a document with unfavorable terms that affect them for years.
It’s critical for your child to understand the lending process before they apply for a loan, but there isn’t an actual requirement when singing the paperwork to show that you understand it. One of the first loans your Millennial child will most likely take out is for college. If they choose to get a private student loan then you will most likely have to co-sign the loan due to their inadequate credit history. Co-signing their first loan allows you to guide them through the process one step at a time. They can learn what to do and what not to do and apply these skills to future applications.
Young adults are a high-risk pool and have no credit when they turn 18. If they are able to find a loan, the interest rate is likely to be in the double digits and result in high monthly payments. If you have good credit, being on the loan as a co-signer can drastically reduce their interest rate, making it more affordable for your child to live on their own. It is easier to afford the monthly payments when you have a lower interest rate, and the amount of interest your child pays during the loan will be cut.
Assisting with education
Going to college requires paying tuition, room and board, and forking out hundreds of dollars every semester for textbooks. Grants and scholarships aren’t enough on their own anymore to pay for all the expenses your child incurs while furthering their education. College continues to get more expensive every year, increasing the need for students to turn to loans if they want to finish their degree program. Without your signature, your child might not qualify or be able to get a loan, which crashes their hopes of going to college. Federal loans are ideal, but the government places a lifetime cap on how much an individual can receive. Your child might have to resort to private loans to finance their education.
Speak to your child about being a co-signer before they start applying for loans. Explain the process, how things work, and guide them through to get the loan they need with terms that are favorable. Ensure them that you are there to help in whatever way you can, including putting your name on the loan for approval and better terms.