Car loans can teach financial responsibility | CarFinance.com

As summer winds down, parents are sending their kids off to college, and many may be considering helping their kids purchase and finance cars. Not only does having a car help a college freshman make friends on campus and come home to visit more often, but it can also present an opportunity to take on financial responsibility and establish credit. As young adults leave the nest and enter into adulthood, one thing they will need is a credit score, and an auto loan can be a great place to start.

For young adults who have not yet established credit, lenders may require cosigners. This is because they have no credit history, which can be just as risky for the lender as someone with bad credit. When a parent cosigns, the lender can look at their credit score to determine an acceptable interest rate and repayment terms. This can help the student obtain a lower interest rate and act as a safeguard in case he or she is unable to make payments. Parents may want to discuss consequences of failing to make timely payments with their children, as late payments can negatively affect the cosigner's credit score as well as that of the car owner.

Purchasing a vehicle with an auto loan can be a great way for a college student to learn how to balance their budget while they establish credit. Parents may want to propose ground rules, such as taking the car away for a period of time if a payment is missed, to encourage their child to pay the bill.

Not only is there a fixed payment amount with car loans, but there's less chance of damaging the credit score than other credit-building options. With credit cards, youngsters may be apt to spend too much and be unable to pay off their balance, but a car loan is not flexible, so there's less chance of slip-ups. Parents can help their kids establish a system to remind them to pay their bill every month or even have the child give them the money directly so they can ensure the payments are made on time. If parents are up to the task, this will not only let them keep an eye on their child's financial situation but also ensure no payments are missed.?

Source: http://carfinance.com/car-loans-can-teach-financial-responsibility/

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