Family and Finances: Would You Co-sign for Family?

Sometimes being successful in personal finance is about sharing what you know with others. Sometimes you feel great about sharing ‘the wealth’; other times, you feel pretty rotten. Like this guy in the picture.

Cars and Family

Last week my younger brother moved into the area and he wanted some help to settle in. He’s 19 and he is a part-time college student trying studying towards an associates degree in architecture technology. He’s learning CAD. I’m not exactly sure what that entails, but it’s something that he’s excited about, so I’m happy.

He made temporary arrangements for a place to stay (first with my husband and I in our small apartment and now with an old friend). Yesterday he started a job as a carpet cleaning technician with a good family friend.

His goals in clued getting a permanent place and get a car. He has a monthly bus pass and he is very lives and works close to bus stops, so it’s not too bad.

Do You Co-sign a Loan For Family?

The other day we were talking about how much to save to get a car and he mentioned getting a car loan. My alarm bell went off. He’s 19 and he just recently got his license. My mom couldn’t afford an extra $250/month to add him to her policy while she’s go back to school (during the evenings) to get her masters degree. He wants to get a car loan for around $4000 to get a Honda or an Acura (‘94-‘97). He then asked me to co-sign the car loan for him.

Why I Didn’t Co-Sign the Car Loan

I love my brother very much. He’s a really good guy. If you met him, chances are you’d love him. He’s just that kind of person. That said, I told him that I would not co-sign. I don’t want to be mean. I genuinely felt that the best way to help my brother was by not co-signing with him and giving him the lesson of learning to budget his money and save up for buying the car himself.

This decision is done out of genuine concern for my brother. As I see it, there’s no urgent need for  a car because he has public transportation to serve him now. It’s not fantastic. The area needs to improve it the reliability of some of its routes. Fortunately my brother’s trip from home to work is 25 minutes and is on one bus. It’s about the same time if he took a car with the traffic around here. His monthly expenses are $50 for a monthly bus pass.

The Math For Buying The Car vs Having a Car Loan

Here’s what he would pay if he did get a car loan (very rough idea):

• Car loan payment:  $159
• Car Insurance:   $250
• Gasoline:  $120
• Monthly Car Expenses: $529
• This would probably be for 3 years, so the total is approximately: $19,044

Here’s how much the car would cost if he save and then bought it:

• Car Amount: $4,000
• Car insurance: $111 (36 months)
• Gasoline: $120
• Total Amount spent in 3 years:  $12,316

He’d save $6,728.00 by saving a few months for his car.

Family and Money: Why I’m Torn About This

I feel bad because when my car was totalled a few years ago, my mom co-signed a car loan for me. While I’m grateful for the help and I have never been late with the payment, I think it was a bad decision. The loan amount was reasonable, but the interest rate was pretty high.

I offered to show him my car loan contract so he can visually see the insane charges and interests that are included in getting a car loan from a dealership. He said he was ok and he said he’ll save up for his car.

Did the information get through to him? Only time will tell. I hope my little brother goes ahead and saves for his future. It would be a shame for him to quit school, because he needs the job to pay his car expenses.

Your Take

What are your ideas on this? Would you have co-signed? Let me know. I’d be interested I hearing your thoughts and ideas.

Photo Credit: Delgoff [soirée RH le 10/11]

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