Cosigning a loan is often a bad idea. When you cosign a loan you take on full responsibility for the debt. Unfortunately, you cannot force the person you cosign for to make the payments on time. This can lead to a very strained relationship, as you will be responsible for repayment if the primary borrower quits making his or her payments. As you can see, it is not a responsibility to be taken lightly.
Is The Primary Borrower a Responsible Individual?
You need to consider many things before you cosign a car loan for your son or daughter. One is, why do they need a cosigner? Is this their first car loan, or do they have a history of missing payments? If they are a first-time buyer and responsible when it comes to their finances, you might consider cosigning for them, as they may find it quite difficult to get approved without a cosigner, let alone at an affordable rate. If they are simply a bad credit risk due to past performance, you should not cosign unless you are willing to repay the loan for them. This leads us to the second consideration…your own ability to repay the loan.
Can You Repay The Loan if Need Be?
Lenders are going to fully expect one of you to repay the loan. If the primary borrower, the person you are cosigning with, does not, you will have to. If you do not, your good credit history will be damaged severely. One payment that is more than 30 days late can tear up to 100 points from your credit score. Are you financially able to make up any late payments and all of the associated fees? You may make the late payment, plus fees, only to find that the next payment is due by the time you are contacted. That means you will actually need to have two payments on hand, plus any fees.
Also, since this loan will be on your credit report, you have to look into your future. Will you be needing a loan at any time during the term of this loan? Will you be maxed out on your credit because of the cosigned loan?
In the end, whether you cosign a car loan for your son or daughter is a personal decision. There is always a chance you will regret the decision, so tread carefully.