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potential cosigning on loan situation with my sister


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Been a while since I've been on here but this is the only forum I ever really frequent so I'll just get to it. My sister recently had an incident with her vehicle where apparently she was driving at night in a dimly lit part of the highway and ran over some concrete from some type of construction nearby. The front end of her little Fiat 500 was badly damaged and the car is undrivable now. Estimates so far have been in the $2-2.5k region from 2 different places according to her. She basically is asking me to help her cosign a loan with the mechanic's shop (which she says is common for them) and finance the repair. I want to help her out but I'm somewhat weary of the risk involved. I have relatively good credit and her's is quite bad as she informed me she was unable to be approved for any type of short term loan of any sort whether its from a store, bank, agency, etc.

 

She just got a new job about a month ago as an associate manager at a nearby bar so paying it off quickly shouldn't be a huge issue from what she has told me.

 

What other things do I need to think about before going in on this with her?

 

If we pay it off relatively fast, say 6 to 12 months depending on the loan, would we both be able to come out ok from a credit standpoint?

 

Now, on the other side of it, my vehicle also needs some work done. I just paid it off and would like to repair it and put some value into it to keep it on the road a bit longer. One estimate was $1k for engine work which I'd like to address soon. I don't necessarily want another car payment right now either. So this led me to think that I might even be able to circumvent her credit issue altogether, and just get a small cash loan for myself to cover both cars, say $3-4k and then have her pay me back the cost of her repair. Is this just adding fuel to the fire or can it come out favorably for the both of us?

 

I told her that we needed to discuss math and particulars before any documents are signed but if the numbers line up I want to believe that this can be a win-win. Can anyone chime in on this or is there a better way?

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I would not do it.

 

Her insurance should cover the repairs. If she is making payments, there may be a clause that pays off the car if it is totaled.

 

She can get a lease on a car without you cosigning to have a car or can rent a car as she puts money aside to make payments to the mechanic.

 

I had several people get into loans with a peer relative and it has always ended badly with the person not making payments.

 

If you do give her money - realize that you may never see the money again. Are you okay with that?

 

If you can't afford a $1k repair on your car, you don't have enough cushion, i would say, to be playing with a potential loan with your sister that you could end up being stuck with.

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Right I'm trying to be cautious here. The first thing I would need to do is have a heart to heart about finances and where she's at and how committed she is to this idea. She has helped out our parents in the past and she says that that is what hurt her credit. I did the opposite throughout the years and tried to have as little tied to my family financially as possible aside from straight cash to help with bills, etc. My parents weren't exactly good stewards of long term monies, but that is beside the point right now. Hadn't thought of the rental idea yet. I have the cushion for my own repair, but I'm still trying to get more estimates as time permits. In the meantime I've made other repairs and would like to see my current vehicle be of some value to either sell or give to my other younger siblings as an options.

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+1 for “Don’t do it”

 

I also live by the principle of not lending money that you are not prepared to lose. All sorts of stuff can happen, including job loss, some other financial tragedy, competing priorities, etc. It’s not worth potentially losing a loved one over money and/or ruining your credit if she doesn’t pay.

 

That said, I am super close to my family and I would also want to help out.

 

In your shoes, I would be far more inclined to go find a $500 beater car to buy her to drive around while she saves for the repairs, with the understanding that when she’s done with it, you will sell it (or junk it) to recoup as much of your costs as possible.

 

That is also helping, and it’s much better to lose $500 (max) then $2500 and create animosity and fighting in the family.

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Why won't she go through the insurance? Car insurance is mandatory in TX. Shouldn't the insurance adjuster be at the shop where the car got towed to assess the damage and work out a price? How old is the car? What's the blue book value? She doesn't need you to cosign a loan. Not sure why she's dealing with these shops directly, rather than through her insurance.

Estimates so far have been in the $2-2.5k region from 2 different places according to her.
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In your shoes, I would be far more inclined to go find a $500 beater car to buy her to drive around while she saves for the repairs, with the understanding that when she’s done with it, you will sell it (or junk it) to recoup as much of your costs as possible.

 

Good Idea. Hadn't thought of that either. Will research and see what I can find. I know there's a few places that will sell cars like that around town.

 

Why won't she go through the insurance? Car insurance is mandatory in TX. Shouldn't the insurance adjuster be at the shop where the car got towed to assess the damage and work out a price? How old is the car? What's the blue book value? She doesn't need you to cosign a loan. Not sure why she's dealing with these shops directly, rather than through her insurance.

 

All good questions, and I need to find out the answers to them first. Not precisely sure what her insurance situation is regarding this or if an adjuster has seen it yet. The car is relatively new, I would say less than 3 or 4 years old, and she's been paying on it for the last 2 years I would say.

 

Hmm I will need to do some more research and see what we can work out. I text her last night saying we should talk first and she has yet to reply. That's my other...uh...gripe I guess is that her communication isn't that stellar. If we are entering a serious financial situation I need to know that she's on the same page as me and can have her answer questions immediately.

 

Won't write anything in stone until we flesh this all out and make the numbers work for both of us.

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Fiats rank the worst in crash tests, so it's not a surprise on the damage it sustained in an accident (and insurance potentially declaring it totaled). And a front end damage is a ticking bomb for future car repairs or engine problems. I would scrap the car.

 

Why won't she go through the insurance? Car insurance is mandatory in TX.

Because if the insurance finds out that she is at fault, they can raise her rates. If she did not hurt anyone (or herself) and the car can be fixed, then I wouldn't talk to insurance either just to keep my insurance costs down. Insurance is mandatory all over the US.

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I wouldn't borrow money from a family member just to keep my own insurance costs down.

 

OP, what happens if she gets behind on payments or stops paying you back? Can you absorb the entire loan on your own? If not, I recommend not doing it.

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She should go through her insurance no matter if her rates go up on not. That is a substantial damage. It's not like it's damage just over her deductible amount (in which case going through insurance would be ill advised.)

 

So: Is she not going through insurance because she doesn't want her rates going up? If that's the case then explain to her that she would be paying any increase (if there was one) over a 12 or six month period and she wouldn't need to take out a loan.

 

I'd really stay out of it if I were you and find her other alternatives to getting the repairs done. Start with insurance and why she isn't using hers.

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The car is relatively new, I would say less than 3 or 4 years old, and she's been paying on it for the last 2 years I would say

 

Then she has gap insurance. If you have a loan on a newer car, that is usually required. If they insurance company totals out the car, she would lose the car, but the loan would be entirely paid in full - she would have to make payments until gap kicked in - but when it does - it will show she paid a loan in full on her credit report - and she can get a loan on a different car and hopefully not a fiat. She could even get a loan on a car that is used but safer as well. In her situation with little liquid cash, she might want to lease for 3 years because many repairs would be covered, you need less credit to do it, etc.

 

The car might not be totalled out, but i would be suspicious of a mechanic who 'regularly takes loans". If the car is only 3-4 years old, she should be going to the dealer and sure it might be more than the shade tree mechanic, but they are approved by insurance to fix it.

 

She is not allowed in most states to have the basic insurance that only covers the person you hit that they allow for cars that don't have loans and are old. When i had 20 year old cars, i did that because any repair would cost more than the car could be rebought for.

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Where I live GAP insurance is optional, not required. They ask if you want it and lots of people say no because it adds a bit to the monthly payment. Full coverage insurance IS required where I live though, because there is a car loan involved and the financing company wants to protect itself in case you total your car or are liable in an accident with another vehicle or property involved.

 

I do wonder how long the original warranty is for, however. I bought my car used but since it is a 2014, when the transmission went out I didn't have to pay because the warranty was for 3 years. I squeaked in before it expired.

 

OP, have you heard back from your sister yet?

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Hey all, sorry for the delay on this but work and life has taken up most if not all my time. A few updates though.

 

Her car is a 2015 (valued at ~$5-6k in normal condition), note is $9k, she's paid $1k to date, she does not have GAP insurance, and she is 100% sure her insurance will total the car according to her. She pays ~$190/mo on the note. $60/mo for basic liability.

 

So far we have decided that buying a beater is a good path, and she's found a few on FB marketplace so far in the $500 to $1000 range. Still looking for the best deal, and we want to have it taken to a mechanic & test drive before any purchase as well as a carfax report. I can float $500ish for a car with her covering the rest and we can leave our credit alone. Plan now is to get a car, have her save and pay off the repairs on the Fiat, and then give the beater to our younger brother who still needs his first vehicle.

 

Thanks all for the great advice and will come back with any other updates.

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It varies greatly. For example car insurance is not required in NH. Most states require at least a certain amount of personal injury protection. Also, some lenders require a certain amount including collision. The 'rates going up' also depends on the insurer and state requirements as well as the circumstances of the accident. "Totaled" is determined by the insurance, amount of damage and blue book value. At any rate the brother should not be on the hook for any of this when she should go through her insurance.

Insurance is mandatory all over the US.
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