No matter how old your child is, until they become financially "settled" in life, things can be rough for them and for you. However, since you won't feel comfortable with them driving around in a beaten-up and potentially dangerous old clunker, how can you help them into a decent vehicle, without co-signing the loan for them? As a concerned parent, here are a few sound suggestions on helping your kid(s) get behind the wheel of a safe, dependable and more economical car, without risking your own good credit in the process.
Don't Act Like Not Co-Signing Is A Bad Thing
Especially if your child has learned to lean on you too much, financially, they might actually be surprised and disappointed that you don't co-sign. Acting sorry may only enforce their belief that one of your sole purposes in life is to keep them afloat in terms of money; thus, ruling out co-signing from the beginning and telling them standing on their own is the best move they could make gets you off to a great start. Inform them that they'll eventually need their own good credit standing one day, perhaps for a mortgage, and that every loan they handle independently is going to take them one step closer to that position. Don't act like you're doing something bad by not co-signing, give them the opportunity to shine on their own, instead.
Encourage Them To Star Saving For The Down Payment
The more money put up for a down payment, the lower the monthly payment will be and the less value the vehicle should lose for your child. Considering how much a car depreciates as soon as you drive it home, if the loan is too big on it, the owner will end up owing more than what it's worth and that's not a position you want your son or daughter to be in. Remind them to stash some cash every week or so and if you can, give them money for holiday and birthday presents, so they can accumulate a sizeable down payment faster. You might also let them clean out your garage or basement and sell a few old things you don't have much use for anymore, like a sewing machine, kayak or power tools. They could use the extra cash and it's always nice to have someone do a job like that for you, instead of having to do it yourself. Especially if there's work and learning involved, it's not a "hand-out", it's a helping hand.
Go Over Their Credit Report With Them
Learning to understand your credit report is the only real path toward improving it, so sit down together with a copy of said report and analyze the data. Does your child need to go back and pay off any old bills that are now marring the credit report? Can they call creditors and make special payment arrangements? Is the all the info on the report accurate? Go over the paperwork with a fine-tooth comb approach and you'll be helping them to situate their credit score, along with giving them a thorough understanding of how it all works.
Advise Your Child To Opt For A Short-Term Loan For Lower Interest
Although longer length contracts may offer lower monthly payments, point out that, in the long run, such an arrangement means paying more interest in total. If your child can handle a slightly higher monthly payment, they'll also be gaining more self-discipline, along with saving money. Make sure, though, that they're fully aware of additional costs, such as insurance, taxes, fuel and other miscellaneous expenses.
Help Them Find Out What Kind Of Financing They'll Be Eligible For
If your child's credit is not as clean as it could be, they might not be eligible for an ideal interest rate on their auto loan and it's important to know this up front. They should know, before setting their sights on a certain vehicle or thinking they're going to be looking at a lower monthly payment, exactly what they're in for. Help them to spend beneath their means, if possible, by looking at vehicles that may not have all the bells and whistles they want, but that will keep them in the position to keep improving their credit score and financial strength.
Talk About Credit Cards
American credit card debt has, unfortunately, reached record-high proportions, which can make obtaining loans very challenging on the individual level. If your son or daughter is in the habit of putting everything they buy on credit cards, this could put them in a compromising position when they apply for the auto loan. Tell your child to make sure they're using a low-interest card, that they pay the full amount of the bill each month and try and get them to consider making more cash purchases. Paying cash not only keeps the credit card debt lower, it helps people to have a more realistic picture of where they're at financially, because they actually have to count their pennies, usually only to discover they don't have as many as they thought they did.
Take Them With You When You Do Grocery Shopping
If your child is like a lot of people, they probably order too much take out, go grocery shopping when they're famished or pressed for time and don't watch for sales at the local stores. These and other bad habits will keep them spending too much money on food, which can really add up over a period of time. If you happen to be wiser and more frugal, ask them to tag along when you do your shopping. That will save them money on gas and should provide them with an excellent opportunity to learn and develop better habits. Show them how to be prepared with a list of what's needed, coupons for some of those items and a flyer, featuring the store's best specials this week. Maybe once your child sees for themselves just how much can be saved, your frugality will rub off on them.
The decisions you make now can help your child not only get into a better car, but start making better financial moves, too. Won't it be nice when they're finally able to handle all their bills on their own and maybe even afford to take you out to an occasional dinner? Keep your fingers crossed and the smart financial advice coming.