Reader question:
I’m thinking about buying a new car, but I don’t have much credit history and I don’t make a lot of money. What do I do?
Ben
Get a co-signer.
It can be kind of difficult thing to do, getting someone to co-sign a loan for buying a new car with you, so it has to be someone that you trust a whole lot, and who trusts you the same. A co-signer can be someone who has equa ownership of the car, or could just be someone who is helping you out in getting a loan, who will probably never drive the car and won’t have their name on the insurance. The co-signer could be your parents or an uncle or a friend who has more credit history or a better income. Whichever way you go, you are both giving that person power over whatever decisions you make concerning the car, as well as giving them a lot of responsibility over something that they might not ever use. If you have a co-signer, you have to be very responsible, because it isn’t just your credit history on the line if you default on a payment.
If you have a co-signer, and you don’t pay your car note, then your co-signer must pay it. And if they can’t, then it will impact the credit histories of the both of you, and the car will be repossessed. That stays on the credit report for seven years, and think of your parents being unable to get into a house or a new car. Even if later on you make a lot of money, it doesn’t matter if you’re trying to get a loan because it is mostly your credit score that they are looking at.
So make your decision to get a co-signer on a loan wisely. And when you do, watch out for the tricks of the trade. One of those is that, when you sign the paperwork for your loan, the salesperson will trick the co-signer into signing the wrong line. This means that the car will end up in their name, and not your own. So you won’t be building credit history at all.
Cheers,
Fashun Guadarrama.