If your young adult needs a reliable car but they don't have any credit and will need you to co-sign on a loan for them, there are some things to take into consideration. Co-signing can be a great way for your teen to learn some responsibility, to understand how important it is to pay a loan on time, and to get the car that they need. You don't want to just give them the loan and the car. Here are some things to consider.
Set the Rules
Set the rules for the arrangement right away. Determine how much your college student will have to pay you each month if you decide to contribute to their payments and actually make the payment, how much they can spend on the purchase, and what any other rules for the car will be. You may want to have them pay you to make sure it gets paid at first. Establishing the rules before you go shopping can prevent arguments. You can also draw up a contract to make sure that your young adult is liable for the promises that they make you. They need to understand, if they break the rules, the car will be taken away.
Find the Right Car Dealership
Find a car dealership that has the following options when trying to find a car for your young adult:
- High quality used cars
- Low interest rates on dealership financing
- Student discounts
- Free vehicle report
The right car dealership will be willing to work with you and your down payment to get your teen the car that they need.
Encourage Paying Off the Loan
You want to encourage your young adult to pay off the loan as early as possible or to make the payments as large as possible so they can gain some equity in the vehicle. Once the vehicle is paid off, they will own their first asset, and they may trade it in for a future purchase that they should be able to make without a co-signer if they paid their auto loan on time.
When you help your young adult get the used car that they need, you can teach them a lot about finances and responsibility and how it works when you need to get a loan for a purchase. Find a used car dealership that shows you the vehicle reports and inspections on any vehicle that you want to purchase, and teach your child how to buy a reliable used car. These are lessons that they'll carry with them long after they get rid of that car.