12

My mother and I are considering getting a loan through the Dividend Finance programme to have a solar panel installed. My mother filled out the primary applicant section of the application and is awaiting her signature. But I was thinking of also signing on as a co-applicant to help diversify my credit report, as I currently have a credit card and credit builder loan, and I have a part time job that may become full-time in the near future.

the loan amount would most likely be around $25,000.00. If the minimum payment was $180/month for 144 months or twelve years, would each of us have to pay $180, or could we divide it between the two us, so I pay 90, and she pays 90?

Improve this question
12
  • 7
    Did you actually make sure the installation itself makes financial sense? How much is her current electricity bill? Is everything electric? Where are you located? Is $180 something she can afford even if she doesn't save a cent?
    – jcaron
    Commented Aug 20, 2021 at 16:29
  • 18
    I know this is not the question, but you should drop this whole idea. Never in the entire lifetime of the panel will you make back $25000 in energy savings, much less the "plus interest". The whole thing is a scam to make money for the lender and installer, not the homeowner.
    – R.. GitHub STOP HELPING ICE
    Commented Aug 20, 2021 at 21:52
  • 5
    If you really want rooftop solar, start off researching how much output you can expect from it (in kwh/month; kw at peak sun intensity is not meaningful) and convert that to a dollar amount using the price per kwh on your electric bill. Even after you fully pay back (or pay off the loan for) the expenses of setting up the system, that is all the savings you will ever get off it, and that's only so long as it lasts. I would not even look at a system you couldn't pay cash for; it's not a good use of borrowed money.
    – R.. GitHub STOP HELPING ICE
    Commented Aug 20, 2021 at 21:59
  • 11
    Is the system going to produce enough electricity, reliably, to cover that $100-300? Or just $50 or so? What about cost of maintenance? Interest? Lifetime of the panels? It's a large debt to take on for the prospect of... breaking even?
    – R.. GitHub STOP HELPING ICE
    Commented Aug 21, 2021 at 1:43
  • 4
    @HannoverFist totally depends on the deal you get from the power company and sizing. If it's a 25KW array that is rolling your meter backwards (PoCo pays you same amount you pay for power), awesome. If it's a 5KW array where the PoCo pays 3 cents a KwH, terrible.
    – Harper - Reinstate Monica
    Commented Aug 22, 2021 at 1:38

4 Answers 4

Reset to default
56

the loan amount would most likely be around $25,000.00. If the minimum payment was $180/month for 144 months or twelve years, would each of us have to pay $180,

That's not how co-signing works. It means that each co-signer is fully responsible for the whole balance.

Let that sink in: if you co-sign the loan, YOU are FULLY responsible if your mother stops paying (for whatever reason).

or could we divide it between the two us, so I pay 90, and she pays 90?

You could do that, sure. But the credit bureaus won't know it's you paying.

I currently have a credit card and credit builder loan, and I have a part time job

Don't do it. I repeat: don't do it.

Improve this answer
12
  • 34
    Can I just repeat that? Don't do it. Never, ever, ever co-sign for anyone. If you have the money, and you want to give them the money, give them the money. If you don't have the money, or you don't want to give them the money, don't give them the money. But NEVER co-sign.
    – gnasher729
    Commented Aug 20, 2021 at 9:22
  • 7
    Not only that but this is NOT a good thing to purchase on credit. The interest will greatly increase your break-even point and will possibly push it past the effective lifetime of the equipment. Do your homework on a PV system, save your money, and pay cash for it!
    – jwh20
    Commented Aug 20, 2021 at 10:41
  • 4
    To make it worse, by the time the debt collectors start coming for you as a co-signer, the account is already in default, with extra interest and late payment fees added. As co-signer, you will be responsible for paying it all.
    – Simon B
    Commented Aug 20, 2021 at 12:38
  • 3
    @NuclearHoagie just remember that there's more to life than financially rational investments. If you can eat the cost and trust the "primary" to not be a deadbeat, then it's reasonable to co-sign (since there are other reasons why the primary might fall behind).
    – RonJohn
    Commented Aug 20, 2021 at 15:10
  • 6
    @jwh20 OP says "$180/month for 144 months" which works out to a very low APR - either zero or near it. Lower than inflation; they'd be ahead the curve, not behind.
    – ceejayoz
    Commented Aug 20, 2021 at 15:26
17

I am going to ignore, or at least minimize, some things:

  • The risk if one of the people on the loan agreement fails to make the payment
  • The impact on the monthly payment. It is likely that your thin credit file and low monthly income will not improve the situation regarding the monthly payment.

There is another potential impact. It is the 12 year length of the loan. For the next 12 years, or until the loan is paid off early if additional money is sent to the lender, you will have to report this loan whenever you are applying for credit or a loan. Potential lenders will see the obligation to pay $180 per month and factor that into what you can afford.

It doesn't matter if all the money comes from the other person. It doesn't matter if there is never a late payment.

But I was thinking of also signing on as a co-applicant to help diversify my credit report, as I currently have a credit card and credit builder loan, and I have a part time job that may become full-time in the near future.

The end result will be that you diversified the report, but the cost is the locked in responsibility on your credit report.

If you apply for a car loan, or a mortgage, or even to rent a place; the lender or landlord will figure in the $180 monthly payment into what you can afford based on your income. That might force you to go with an older car, or a smaller car or a place in a less perfect location.

Improve this answer
5

Depending on the terms of the loan and how the interest rate is calculated (ie is it a flat rate, or could adding you to the loan decrease it), it is possible that adding you to the loan could result in a slightly lower monthly payment.

If your rating is lower than your mother's, then the payment will not be decreased, and may actually increase (again, depending on if the interest rate changes).

That being said, I'll repeat the other answer's admonition to not do this. Co-signing is something that has the potential to ruin relationships, and can seriously come back to haunt you.

If your mother becomes disabled, or otherwise unable to make the payments (if she is the only one on the loan) then the creditor has little recourse, other than repossession. If the same situation happens, and you are also on the loan, then you are liable for the remaining balance.

If your mother simply decides later to just not pay, and you are on the loan, then you still get the results of the previous paragraph, but you also get bonus family drama and disappointment, and (if you can't pay), can destroy the credit rating you are trying to build.

Improve this answer
3
  • I expect that if he has a good enough relationship with his mother that he wants to do this, it's unthinkable that she would voluntarily "decide just not to pay" and saddle him with the debt.
    – Barmar
    Commented Aug 20, 2021 at 19:29
  • So he would only become responsible if something unexpeted occurs (e.g. she passes away). And if he gets an inheritance, it could cover the expenses.
    – Barmar
    Commented Aug 20, 2021 at 19:32
  • @Barmar It is always "unthinkable" that such a thing would happen. Many people who co-sign are absolutely convinced that it is just a technicality and for most of those it doesn't even cross their mind that they are now liable for the entire debt. Things happen, and the mother's situation or priorities may change and result in the payments not being made.
    – Michael Richardson
    Commented Aug 22, 2021 at 4:59
2

Not addressing at all whether you should co-sign, I think it's helpful to explain what the minimum payment is, as you probably don't understand what that is.

For fixed debt, meaning debt with a certain dollar amount that doesn't allow you to borrow more (like a credit card would), minimum payments are calculated as the amount that, including interest, will pay off the full loan over the life of the loan.

So, if you have $10,000 borrowed, and it's a 1 year loan, with 12% interest (annual, compounded monthly), then you can do the "back of the envelope" math to figure out around what the monthly payment is:

Interest = 100 for the first month (1% = 1/12 of 12%)
Principal= 833 (1/12 * 10000) 
Payment = 933

It ends up being less, because you pay down the loan and reduce the interest over time - see this amortization calculator which does the math for you. This shows a payment of $888 for that loan.

Month Total Interest Principal
Month 1 $888 $100 $788
Month 2 $888 $92 $796
Month 3 $888 $84 $804

Etc, until it's paid off. That loan minimum payment is for the loan and has nothing to do with the party(s) who owe it; it's solely determined by the amount owe, the interest rate, and the length of the loan, plus some technical details.

The only way cosigning could affect that payment is if it changed the interest rate or the term (length). It could certainly affect that, though, if it increased or decreased the risk associated with the loan.

Improve this answer

You must log in to answer this question.

Not the answer you're looking for? Browse other questions tagged .