In some instances, having a poor credit history can severely restrict your access to capital. Certain lenders may be willing to extend finance on strict or otherwise unfavourable terms, while some financiers will be reluctant to provide anything at all.
One option that comes into the equation is co-signing the loan with another party who have a better credit history to support the application. If you find yourself in this position and someone has asked you to co-sign a car loan, here is what you should first stop and consider.
Understand the personal effects
Money is a sensitive issue for many people, yet alone when it comes to family, friends or a significant other. It can be, and often is, a divisive matter that can tear apart families, lovers and even put an end to life-long friendships.
Make sure that you have a full and honest discussion with the other co-signatory to gain insight into their financial position and their cost of living. Regardless of how well you think you can trust the other person, it never hurts to put legal framework in place to protect both of you if any disagreements arise.
Trust is paramount
When you co-sign a car loan you become responsible for monthly repayments. It does not lie with just the other signatory. Should any repayments be missed, your credit history will also be hampered and it is your onus to settle the debt. As such, you need to be entirely trusting in the other party being able to meet the obligations of the loan.
Never sign with someone that you do not feel 100% confident in their ability to service the car loan. If their repayment history leaves you anxious or concerned, walk away from the proposition altogether.
Seek insight into the loan
The main borrower is the one who will receive updates on the status of the loan as it is paid down. With this in mind, it is unwise to let that go unfiltered without any access or visibility into the matter. Sight the documents yourself at an agreed regular interval so that you have peace of mind.
Set up a specific schedule with the other co-signatory to arrange direct debit payments on the loan. Ideally these payments should be done directly from the main borrower’s account so that they are paying off the debt. However, if you have a personal agreement to the contrary, whereby you make repayments and claim them afterwards, consider requesting lien over some assets of theirs to provide you with some security should things go pear shaped.
The Fincar team is here to help you with all your financing needs. Contact us today to help arrange your next car or equipment loan.