There are RISKs in Cosigning a Car Loan
I’ve seen cosigning deals go awry more often than not, so I typically counsel people not to get involved in them. The negative consequences of cosigning aren’t limited to short-term monetary problems, but can cause long-term relationship problems, too.
People need reliable transportation, but I would not categorize cosigning a car loan as a low-risk deal—just the opposite, in fact. If the lender thought the person needing the cosigner was a good risk, he/she would have gotten a loan without a cosigner. That should tell you a lot.
Car loans are typically five or more years long. There’s a lot of wear and tear on a car during that time, and the car will depreciate in value. The value of the car may not be enough to pay-off the loan at any given time. Consequently, you have to consider if you are willing and able to pay for any deficit if the person defaults on the loan. If the signor cannot or does not make the payments you, the cosigner, are obligated to make the payments. If events change in your life, would you still be able to make the loan payment?
When you cosign for a loan, this amount is counted in your debt ratio, as though you are making the payment yourself. This will affect your ability to borrow money to buy a home or a new car of your own.
What will you do if the person is unable to make the car payments for any reason, and he/she is afraid to tell you, as is normally the case? It’s possible that he/she could be 30 days late on the payment before you even find out, which will ding his/her credit—and yours. While the person might invite you to cosign on the loan, he/she probably won’t be as willing to let you tell him/her how he/she should spend his/her money so that he/she is able to make the car payment.
Given the risks of cosigning on a loan, I’d encourage you to help the person find different option. If he/she doesn’t currently qualify for a loan, the loan officer should be able to suggest what he/she can do to get a loan in the future. If he/she needs help, it may make more sense to help him/her do what it takes to qualify for a own loan, rather cosigning for him/her.
When he/she takes action in the right direction, it will build his/her confidence. He/She will learn a valuable lesson about borrowing only what you can afford to repay. People who purchase their own cars often take more pride in maintaining that car.
If a lender tells the person no unless they have a co-signer for a particular car and price, that doesn’t mean he/she has no other options. Help the person look at all his/her options and to make a decision that won’t put your finances—or your relationship—in peril.
What to do When You Are Financially Overwhelmed
By Bonnie Spain
IWhen an individual or couple encounters financial struggles it is not uncommon for them to stop opening their mail. Sometimes it takes courage to get a handle on the whole situation, but that’s exactly what you need to do. Your situation won’t be as overwhelming once you face it head on—ignoring the problem will only make matters worse.
Open all of your mail and gather all of your bills so you can get a complete picture of what you owe. Whether you use a spreadsheet, computer program or paper and pencil, make a list of every creditor you owe, the balance owing, the regular monthly payment and the past due amount.
Once you know what you owe and to whom you owe it, you need to consider how much you have to pay your creditors. You can do this by carefully reviewing your monthly budget, or by considering the money you have coming in and going out each month. What do you have left after you pay your rent or mortgage, utilities, medicine, groceries, insurance, and other necessities? This is what you will have to pay your creditors.
It can be difficult to take a measured approach when you’re anxious to get out of debt, but you have to set some priorities. Your first priority should be to keep a roof over your head, so pay your rent or mortgage first. Next, you need to ensure you make your car payment, so you can keep getting to your job. Tax payments are also a priority. Utilities are also important. Then come your other debts. If you have more than one creditor, every creditor will want to be paid, so you need to determine how much you can afford to pay each one of them. You need to find a way to make the payments from this point forward and also catch up on any past due payments.
Many people receive letter after letter from their creditors, asking them to call if they are experiencing trouble. You need to take this invitation seriously and communicate with your creditors. Your creditors have no idea what difficulties you are experiencing if you don’t call them. You need to explain what caused you to become past due and what you plan to do to bring your account current. Be honest in your dealings with your creditors and don’t promise a creditor something you cannot do.
Your creditors may work with you, or they may request that you go to a non-profit credit counseling agency to seek assistance. A non-profit accredited credit counseling agency can often help you gain concessions, such as waived late fees and reduced interest. This can make it easier for you to get caught up.
Sometimes, the hardest part of a battle is getting started. Get a clear picture of what you owe and make a plan. If you are unable to come up with a plan on your own to get caught up, seek help.
What does it mean to say bankruptcy gives you a clean slate?
By Bonnie Spain
A bankruptcy doesn’t wipe your credit report clean. Whatever past delinquencies, judgements, or repossessions you’ve had will stay on your credit report for a predetermined time; a bankruptcy will not change this. What’s more, bankruptcy itself is a matter of public record and will also become part of your credit report.
Unfortunately, there’s a lot of confusion surrounding bankruptcy, including what it is, what people can and cannot do in bankruptcy, and what assets they can and cannot keep. You cannot keep a home, for instance, and not make the mortgage payments. Nor could you keep a car if you don’t continue paying what you owe on it. Ultimately, the law determines what assets you can and cannot keep and what debts you can and cannot file on. An attorney can advise you on the particulars of the process.
People file for bankruptcy because they are unable to repay their debts. When you file for bankruptcy, you no longer have to repay the debts you declare bankruptcy on. And you do not have to live forever with debts you have no ability to repay. In this sense, you are starting over, which is in a way a fresh start or a clean slate. But it’s important not to assume anything about the process or what you can expect from bankruptcy.
Bankruptcy laws were designed to allow people to start over when their debts are too large for them to repay. These laws were designed so that bankruptcy is the option of last resort and to prevent abuse in the bankruptcy process. Whether bankruptcy is the best option for you depends on your income, assets and the types of debt you have. In addition, not all debts can be discharged in a bankruptcy.
My advice is to always investigate all of your options. If you are having trouble paying your debts, you should contact a non-profit accredited credit counseling agency. If you have more questions on bankruptcy, you should consult an attorney that practices bankruptcy law.
