…that cosigning on a car loan could be a huge mistake?
Your close friend or relative is requesting your assistance to purchase their next vehicle. Instead of giving them money, they would like for you to cosign on their loan. Just as a reminder here are top three reasons why this could be a huge mistake:
1. Your responsible for the loan – you are agreeing to take over the payments in case the primary borrower cannot afford them or just stops paying.
2. You are risking your credit rating – the reason they came to you is because you have good credit. Watch out, if they stop paying, make late payments or if the car gets repossessed, it reflects on your credit too!
3. You are risking your borrowing power – you will have a hard time qualifying for any future credit should the primary borrower default on their loan.
But if you are determined to help the other person purchase a car, there are four things you need to do:
1. Put your name on the title – this way if you have to, you can take over payments on YOUR car or even sell it to pay back the loan.
2. Ask for a key – after all, you’re an owner too. If you need to recover the car, at least you will have a key of your own.
3. Monitor the payments – if you are willing to cosign then you are willing to baby sit that car loan. Asking to monitor the payments may be a hassle, but it will avoid future surprises.
4. Keep up with the insurance – if the car is in an accident and totaled and the primary borrower has no insurance or decides not to cover the repairs, this leaves you responsible for the payments on a car that is not worth owning. Make sure there is insurance and that it is sufficient to cover the replacement of the car.