EchoBay Expert: My 21 year old son has bad credit already and has asked if I would co-sign for his auto loan. What's involved in co-signing for a car loan?
Loyal Reader: To put it in the most basic of terms, if you co-sign for your son's auto loan, you will become responsible for making the monthly car payments if he doesn't follow through with his responsibilities. This means that if for some reason your son weren't able to continue to make the payments on the car, you would have to make them for him, and if you didn't, the lender could proceed with collection actions against you.
This would affect not only your son's credit rating, but your credit rating as well. If the lender wasn't paid, they could repossesses the car and possibly take you to court for damages. Even if you wanted to sell the car, if you are only on the loan papers and not on the title, you'd have no right to do so.
It's also important to understand that even though you're just the co-signer and not the primary borrower, this loan will show up on your credit report as a debt. Unless you're willing to bear the burden of that responsibility, co-signing for your son's loan may not be the best idea.
However, if you're sure that your son will be able to make his monthly car payments without a problem and you don't mind pitching in if extenuating circumstances prevent him from doing so, then co-signing is a great way to help your son rebuild his credit.