co-signing for nephews car loan

[Luvs2Learn]

My husband's nephew who is almost 21 has asked us to co-sign a loan so he can buy a car. (his old truck has 200,000 miles and needs new breaks, tires, you name it it needs it.) His mom can't co-sign she has financal issues thanks to her cheatin ex-husband who also can't co-sign for his son.
He is a hard working young man but he lacks motivation. I am very concerned about co-signing for anyone. I know that if he defaults we would have to pay off the loan, but I am also worried that if he is late on a payment it could affect our credit status and the amount of credit we could apply for if needed. I have 3 small children.
I don't know alot about the legalities of how co-signing works. Does any one know where I can find mor information about co-signing?

[jrabs]

Here is some info.

http://www.bad-credit-advisor.com/20...her-loans.html

Super bad idea. When you go into something like this, you need to understand that the loan is completely your responsibility - debt and all. If you cannot afford to pay an additional loan, then don't do it.

Also, when doing this, you also need to accept the fact that you may get stuck for the entire loan without an asset in it's place to sell. Can you accept that?

[novaslasher]

It's true that you will be responsible for a loan default AND will share payment history with him on the loan if you cosign. So if he misses a car payment or two, you incur the negative marks on your credit score. The credit agency Experian confirms this here:
http://www.experian.com/ask_max/max020409c.html

Not to mention that if your nephew misses payments, for whatever reason, it can ruin your relationship with him. My responsible younger sister asked me to cosign her car loan once, and I had to turn her down. I know she would never intentionally hurt my credit score, but what if she was unemployed or injured for a long period of time? I only lend what I can afford to lose (and this applies to cosigning since you are responsible for the loan if it defaults).

[Deo Gratias42]

Originally Posted by novaslasher

Not to mention that if your nephew misses payments, for whatever reason, it can ruin your relationship with him. My responsible younger sister asked me to cosign her car loan once, and I had to turn her down. I know she would never intentionally hurt my credit score, but what if she was unemployed or injured for a long period of time? I only lend what I can afford to lose (and this applies to cosigning since you are responsible for the loan if it defaults).

That's what loan insurance is for. Never turn down the insurance that comes with the loan. The few extra dollars a month is worth it.

When I was 22 I was able to get my car loan without a co-signer. Granted, that was a few years before the recession. I never missed a payment that wasn't my fault (I missed one when my employer "forgot to do payroll" and I never got paid.) despite having a rough patch of employment.

When I took out a student line of credit, I had to get someone to co-sign for it, which was one of my parents. The general rule of thumb is, if you co-sign for a loan, do so with the expectation that you will be paying for the loan. My mom had to make a couple monthly payments on the interest when I was between school and work, as sometimes it took me a while to find a job, but I'm still responsible for the loan. I can't declare bankruptcy now that I have something cosigned.

[zz912]

Originally Posted by Deo Gratias42

That's what loan insurance is for. Never turn down the insurance that comes with the loan. The few extra dollars a month is worth it.

When I was 22 I was able to get my car loan without a co-signer. Granted, that was a few years before the recession. I never missed a payment that wasn't my fault (I missed one when my employer "forgot to do payroll" and I never got paid.) despite having a rough patch of employment.

When I took out a student line of credit, I had to get someone to co-sign for it, which was one of my parents. The general rule of thumb is, if you co-sign for a loan, do so with the expectation that you will be paying for the loan. My mom had to make a couple monthly payments on the interest when I was between school and work, as sometimes it took me a while to find a job, but I'm still responsible for the loan. I can't declare bankruptcy now that I have something cosigned.

This is bad advice. The loan insurance does NOT make your payments if you can't. Most of the insurance they offer is Declining Benefit Term Life Insurance. It will pay off the balance of the car loan (minus the value of the car) if you die. It is EXTREMELY expensive insurance, and the only people who should even consider it are those who CANNOT get any insurance anywhere else.

Now if I'm wrong about the insurance and they do have payment protection, again, it is VERY expensive insurance, and you would be better to put that extra expense into a savings account.

[zz912]

Bad Bad Bad Bad idea.

NEVER co-sign for someone. It is one of the worst mistakes you can make. Don't do it.

The reason he needs a cosigner is b/c the bank knows he is a bad credit risk. Also, it should be a warning sign to you that you said "He is a hard working young man but he lacks motivation." Warning bells should be going off in your head.

Let him find a beater car that he can buy for $1000, and then have him save up money (the car payment he is supposed to pay on the co-signed loan) and then buy a $3000 car, and save some more money (again saving the loan payment he doesn't have), he can then have a $5000-7000 car in the space of 2-3 years, without a loan, and without you having to co-sign.

[chaunceygardner]

I do not recommend that you cosign for a nephew or anyone else, for that matter, unless you totally understand what you are doing and take certain precautions. When you cosign, and PRIOR to signing the actual loan contract, the cosigner must be given and sign a notice of their responsibilities. This is the language required by federal law:

You are being asked to guarantee this debt. Think carefully before you do. If the borrower does not pay the debt, you will have to. Be sure you can afford to pay if you have to, and that you want to accept this responsibility.

You may have to pay up to the full amount of the debt if the borrower does not pay. You may also have to pay late fees or collection costs, which increase this amount.

The creditor can collect this debt from you without first trying to collect from the borrower. The creditor can use the same collection methods against you that can be used against the borrower, such as suing you, garnishing your wages, etc. If this debt is ever in default, that fact may become a part of your credit record.

This notice is not the contract that makes you liable for the debt.

Some things to consider:

Does the person have the income to make loan payments, insurance payments, and other expenses? Too many young people do not consider all the expenses of buying and owning a car.

For a car loan, look at the amount being borrowed vs. the price and value of the vehicle. Is it a good deal? Will he be "underwater" from day one?

Ask the lender why your nephew needs a co-signer. Bad credit history, no credit history, short term or irregular employment, inadequate income? Might tell you something.

Even if the person makes the payments, the debt and payment amount is listed on YOUR credit bureau report, which means that the monthly payment is taken into account in determining your debt ratio. That can affect your ability to borrow money, if it makes that ratio too high. This can also be a factor in the amount you would be eligible to borrow for a home loan.

If the person has late payments, that will go on your credit record. If the person defaults on the loan, the lender can and likely will go after you BEFORE they try to repo the car.

So if you do co-sign, make sure you get copies of all the documents. Make sure that the car is insured, for if your nephew does not keep it insured that can trigger default. Or if it is not insured and is wrecked, the lender will collect from you.

Also, verify that the payments are being made on time. DO NOT take the borrower's word for that, but check yourself. Talk to the lender and request that they contact you immediately if a payment is late. Some co-signers take the step of collecting the payment from the borrower and then paying the lender themselves, so they know it has been made.

Now you may have a very trustworthy nephew, but you need to protect your own credit rating. Whether it is a nephew you cosign for or your spouse, your credit rating can be ruined by what they do (or don't do).

With all that being said, it is true that for many young people the only way they will qualify for a car loan is with a co-signer. It may not be because they have BAD credit, but because they have little or no credit. They have to start somewhere.

You can find information about co-signing at the FTC.gov web site and at sites maintained by other agencies and credit bureaus.

[Luvs2Learn]

another question I just thought of.. If we co-sign for the car does that make us part owner of the car in the event that he got into an accident would we be liable for damages?

[zz912]

Originally Posted by Luvs2Learn

another question I just thought of.. If we co-sign for the car does that make us part owner of the car in the event that he got into an accident would we be liable for damages?

Only if you are on the title to the car listed as an owner. But the down side to not being on the title is that you can't sell the car if need be, only your nephew could do that. You will have no control over the asset securing the loan.

[jc-servant]

Another bad thing about co-signing for someone is that they might not pay for the insurance and if they wreck the car loan does not go away. The person who bought the vehicle may stop paying for insurance and/or the loan at any time but the person who cosigns has no control over their actions.

A lender does not care who they have to strong arm to get their money and the person who cosigns can have their life ruined by trying to do a good deed. It may sound crazy, but it might be better to take out the loan on a reasonably priced vehicle in your own name and have your name on the title and the nephew as only an authorized driver on the vehicle and insurance until he pays the loan off. Under those circumstances you could have a separate contract drawn up for the nephew to pay you back. It would give you the ability to sell the vehicle at any point if he didn't meet his obligations and you would know the payments are being made on the loan and the insurance. If that feels too formal just think of how awful it would be if the nephew flakes or just loses his ability to work and causes a bankruptcy for his helpful relatives. I would not do it if I could not totally take over the vehicle myself and with small children to consider, I think the nephew needs to ride a bicycle or take the bus to work or pay someone to give him a ride until he can pay for whatever vehicle and insurance he needs.

[BobCatholic]

What warnings are given in the Bible regarding co-signing?

-Do not co-sign for a neighbor.

-Do not co-sign for a stranger.

[DaveBj]

[quote=BobCatholic;6151622]What warnings are given in the Bible regarding co-signing?

Thanks, Bob, you saved me the trouble.

Two words: Bad idea!

DaveBj

[armywife]

You've already said yourself that he'd not a motivated worker. That would be enough for me to say no.

[daeve]

Coming from the lender side here...never co-sign for anyone. I've seen credit reports belonging to little old people showing 3 or 4 sports cars, and they can't refinance their house to get a payment they can afford.

If you co-sign you're telling the lender that if that guy doesn't pay, he can come to you. When I look at your credit, I add that debt to your debt ratio, and if there are slow pays I count that against you. IYou might be able to prove that someone else makes the payments from his own checking account, and I might remove it from your debt ratio, but I'll need at least 12 months of that person's bank statements showing timely payment. What if he hasn't been making the payments or thinks it's none of my business? What if he pays by money order? What if he gives you the money and you pay? You're out of luck in that case. How will you feel if he doesn't make the payments and you have to dig him out of trouble?

I wouldn't co-sign for anyone, or ask anyone to co-sign for me either.

[SamH]

Originally Posted by zz912

Only if you are on the title to the car listed as an owner. But the down side to not being on the title is that you can't sell the car if need be, only your nephew could do that. You will have no control over the asset securing the loan.

If they "co-sign" the note the bank may insist that their name also be placed on the title. I bought my mom a car 10 years ago and had the note entirely in my name - the bank insisted that my name also appear on the title.