 |
Ask Dr. Don
By
Don
Taylor,
Ph.D.,
CFA
•
Bankrate.com |
Co-signing a daughter's car
loan
Dear Dr. Don,
My husband has an 18-year-old daughter who wants him to
co-sign a car loan for $14,000. He just bought a home last month
and took out a mortgage for $150,000 and withdrew another $45,000
from his annuity. He makes good money, but he has extended himself
to the point of not having any credit to fall back on if he co-signs
this loan.
The daughter works about 30 hours a week earning minimum
wage at a Wal-Mart. She insists that she can afford this loan. She
has a poor driving record, and in addition to car insurance, she
has to pay $1,800 a year in license insurance. I say she can't afford
it, but he wants to give her the benefit of the doubt. What do you
think?
Susan Sustainable
Dear Susan,
Co-signing the loan means that your husband will be responsible
if his daughter can't make the payments. That means that he needs
to figure out where he's going to come up with the money if she
can't. Odds are that he'll be asked to step in to take on these
payments.
The Federal Trade Commission has an online brochure,
Co-signing
a Loan, that describes the pitfalls in greater depth. The
best line in the brochure is, "When you're asked to co-sign,
you're being asked to take a risk that a professional lender won't
take."
It's not very realistic to expect that his daughter
will be able to keep up with the costs of owning this car with a
part-time, minimum-wage job and high insurance expenses. It would
be a great idea for her to put together a monthly budget showing
how she plans to meet this commitment along with her other financial
obligations. Asking your husband to point out where the payment
will fit in your household budget is the second part of this financial
equation.
I'm guessing that neither my opinion nor yours will
carry much weight in this matter.
Parents often make financial sacrifices for their
children. Pointing out the risk inherent in co-signing won't change
her father's desire to help her out.
If the goal is reliable transportation, she
should be able to reach that goal for a lot less than $14,000, limiting
the potential financial problems down the road.
-- Posted: Oct. 9, 2002
|
