Q: I agreed to co-sign a car loan with my son. He had some credit problems a few years ago and can’t qualify for the loan on his own. He has a new job lined up and promises to make the monthly payments on time. I’m anxious about co-signing as I really can’t afford to make the payments myself if he doesn’t fulfill his commitment. How do I go back on my word with someone who is so important to me?
A: This is a hard decision to make. When it comes to money issues and family it’s never just about the money – it’s about the relationship, our values and beliefs, along with our behaviours.
What you need to consider before co-signing
Before you consider co-signing a debt with someone, you need to be absolutely sure in your mind of two things:
- You can afford to pay the whole debt if the co-borrower is unable to meet their financial obligations;
- The relationship will remain intact even if you have to cover the payments temporarily or permanently.
How to break the bad news
If you cannot afford to cover the payments on your budget and/or the relationship will be impacted or even ruined, it is best to gracefully decline. The hard part will be explaining this to your son. I recommend that you sit down with your son and have an honest conversation with him. It’s important to acknowledge that you wanted to help and that’s why you agreed to co-sign the loan. However, after carefully looking at your own finances you simply can’t afford to take responsibility for his loan if he is unable to make his payments.
How to help them move forward
I encourage you to discuss other options your son has to travel to and from his new job. Can he take public transportation or carpool with a co-worker? Can he sell any non-essential assets and buy a cheaper vehicle right now?
I would also encourage your son to speak with his financial institution and find out what steps he can take to improve his credit worthiness in order to qualify for a loan in his own name in the future. Focusing on the future instead of past mistakes will hopefully provide him with the motivation to learn and practice good money and credit habits.
Your relationship is worth more than this issue
This may be a difficult conversation to have with your son but your role is to be honest, compassionate and yet very firm on your decision that you cannot help him. The disappointment he may have is a small price to pay in comparison to permanently damaging your relationship.
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