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Co-signing an Auto Loan for Your Teen

Most teens, when they reach the driving age, dream of owning a vehicle and don't really think about new model car safety concerns. For the most part, it's pretty impossible for teens to afford a car on their own, but some have the opportunity to purchase a car with the help of their parents. If your teen has worked hard for the last few years and has saved up some money, then you might be able to help him or her get an auto loan that will allow for the purchase of a new or used vehicle.

If you are thinking about co-signing an auto loan for your teen, then you need to do some careful thinking before you do so. It's a big step for you to take, so it's something that really should be approached with caution. Not thinking about things all the way through before you agree to sign a loan could make some grave financial consequences for you and for the rest of your family. As such, you should sit down with your teen to talk about this before any final decisions are made regarding the loan in question.

Things to Discuss

When you are planning to co-sign a loan with your teen, there are a lot of things that need to be discussed. First and foremost, you need to discuss the importance of finding a sensible car with your teen. If you help to sign for a loan, then the odds of getting a good interest rate are going to be much higher. When this is the case, your teen may get the idea of purchasing a car that costs a lot more. However, it's more sensible to keep expenses down and get a car that can be paid off quite quickly.

Another issue that you need to discuss with your teen before you sign a loan is how the payments are going to be handled each month. If your teen has a job and has saved up money, then you will want to require him or her to make the payments. If this is not the case, then you will need to work something out and figure out what your teen will be responsible for paying. Not taking the time to discuss this could leave you responsible for paying for bills that you don't have the money to afford each month.

You should also discuss with your teen what could happen if you fall behind on payments for car coverage. If your teen cannot afford to make the payments on the loan, then you could end up being responsible for it, and your credit score could end up being damaged. This is something that you will want to avoid at all costs, so your teen needs to know just how important it is for the payments to be made each month on time. Talking about this can clear everything up and make sure that teens keep things together.

Agree on a Term

When co-signing an auto loan for your teen, you should sit down and make sure that you both agree on what term the loan should be for. Your teen is not going to want to deal with a car payment for a large number of years, so it's important for you to figure out a way to pay off the car as soon as is possible. If your teen can make a larger down payment on the vehicle, then this could significantly reduce the term of the loan that you have to secure from the bank.

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