Co-signer Or No-signer?

co-signer

Getting turned down for a car loan sucks. In some cases, credit or income issues may be all that stand between you and a new or new-to-you car. A co-signer with a strong credit history and good income may be the answer…or not.

If you’re a first-time buyer with little or no credit or just starting out on the job, chances are it’s tough to qualify for a car loan without a little help. In some cases, the lender or finance company will recommend taking on a co-signer for your car loan.

Your co-signer will sign the paperwork with you, and in turn, they are legally obligated to make the loan payments if you are unable to for any reason. Your BFF may have a great income and excellent credit, but would they be a good co-signer? Probably not.

Taking on a co-signer is a business transaction, so it’s best to leave friends out of it, even if they offer. Same goes for significant others. They mean well, but chances are there will be bad blood if they had to step in and take over your payments if you were unable to.

My neighbor had a rude awakening when his now-ex-girlfriend stopped making payments on the car they co-signed for. My neighbor found out the loan was 45 days in arrears, and the credit union came looking for him to make the payments and to bring the loan current.

Like I said, leave friends and SO’s out of it for everyone’s sake.

Enter mom/dad, grandparents or other relatives. Sure, they face the same risks as do other co-signers, but in most cases, they have the maturity and life experience to view it as a business transaction and treat it as such.

It helps to be on good terms with them in the first place. In that case, parents or other relatives can co-sign for you, and you can refinance the loan into your name only after you’ve made successful payments after a year or two.

family

No-signer

If you and your family are on shaky ground for any reason, don’t do it. It will only strain the relationship even further. Money and family either mix or they don’t. Period.

Don’t do it if your co-signer isn’t fully clear-headed or in good health. Attorneys use the term “being of sound mind and body” for a reason. Grandparents may mean well and want to help, but if their health or mental faculties are fading, they may not fully understand their legal obligation to you and the loan should you lose your ability to pay.

They may also end up experiencing a health-related financial crisis in the near future that will hamper their ability to meet their own obligations, let alone a transaction they co-signed for.

Don’t do it if there are any kinds of strings attached, aside from meeting your obligation to repay the loan. Family dynamics are tricky, so as badly as you may need a car, it may not be worth bringing on a co-signer in the long run if your family relationships are unusually complicated.

Getting turned down for a car loan sucks, especially if you are in dire need of a car. Taking on a co-signer is a major business transaction that requires a clear head and some insight

Next up: How your debt-to-income ratio affects your car-buying chances.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s