Is It Ever OK To Co-Sign a Loan With a Family Member?

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Welcome to Ask Clark, a column designed to answer your financial questions, by money expert Clark Howard.

Is It OK To Help a Family Member by Co-Signing a Loan?

Rick from Texas: “We want to sell my brother our truck, but we want to build his credit. Can I co-sign a loan for him to buy our truck from us?”

Clark’s Take on Whether It’s OK To Co-Sign a Loan With a Family Member

Clark says: “This is not how I want you to help your brother to build credit. The reason is that the problems I hear on co-sign loans among family and friends are so, so ugly.”

“Anytime you co-sign a loan for a family member or friend, if that family member or friend gets in a rough patch and can’t make the payment, you’re on the hook for that,” Clark says. “If they go late with a payment and you don’t know, your credit is trashed along with their credit.”

Instead of risking your credit to help someone else build theirs, here’s Clark’s suggestion:

“If you want to sell your brother your truck, and you can afford it, have your brother just pay you monthly for the truck, where the note stays with you.”

As for building credit the right way, Clark says, “There are much better ways using the credit card programs for people who need to build credit or repair credit.”

Other Ways To Build Credit

Secured Credit Card

A secured credit card works like a debit card: It lets you spend only the amount you’ve deposited into an account with the card issuer. Not only does a secured card protect you from going into debt, but it actually helps build your credit with each purchase.

We like the Chime Credit Builder and the Petal Card.

Authorized User

Clark says, “If you want to help your brother, another way to do it is to make your brother an authorized user on one of your credit cards. But don’t give your brother possession of the card, and that will help your brother with his credit standing.”

Learn more about being an authorized user on a credit card.

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To hear Clark’s full take on this question, listen to the segment:

Do you have a question for Clark? Use this form to ask him! And remember that you can listen to the Clark Howard Podcast at any time here.

If you have a question but don’t want to go on the air, contact Clark’s Consumer Action Center for free money help.

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