Sometimes my life feels like groundhog day. About once a week I get a phone call that goes something like this:
Two years ago I co-signed a loan for my best friend for $5,000. He was buying a used car. Sure enough he skipped out on the payments and now they are coming after me. What can I do?
Co-signers are needed when someone doesn't have good enough credit to get a loan on their own. That in itself is a warning - if the bank doesn't think they're a reliable debtor, then maybe you should think twice.
The main point of co-signing is that you are just as responsible for the debt as the person you are helping, but usually you don't get any benefit from it other than goodwill.
It's a bad idea because once you sign it's hard to go back. You're basically agreeing to pay if the other person fails to do so. If you co-sign on a car loan for your cousin and your cousin can't make the payments, the creditor will come to you for payment. And there's not much you can do to get out of it. If you don't pay, you'll be the one with bad credit.
You can sue the person you signed for to try and get your money back, but they're likely having money problems so there's no guarantee you'll get paid, even if a judge rules in your favor. If they file for bankruptcy you are stuck with the debt.
If you have already co-signed and are regretting your decision, you can ask the person you co-signed for to refinance in their name only. This is somewhat of a long shot, but may be possible if their credit has improved and they are willing to go through the refinancing process.
Of course the best thing to do is avoid co-signing in the first place. It's like loaning money to a friend - simply a bad idea.
Filed under: Uncategorized