||Ask Dr. Don
Co-signer wants out
Dear Dr. Don,
I will be getting married in 3 months. My fiance
has co-signed an automobile loan for his mother. He wants to get
out of this contract. His mother does not want to sell the car,
trade it in or pay off the balance. This dilemma not only affects
him but my personal liability toward this loan. She has sole ownership
of the car. What recourse does he have?
I usually limit myself to financial advice, but just this
once I'll throw in some free marital advice, too. When talking about
your future mother-in-law, don't use terms like recourse when evaluating
your fiance's options. They'll both resent it. When he co-signed
the loan, it was for the life of the loan. Creditors can and will
expect the son to make the payments if the mother does not.
The Federal Trade Commission has an online brochure,
a Loan," that discusses this obligation in greater detail.
One important point made in the guide is that the co-signer should
ask the lender to agree, in writing, to notify the co-signer if
the borrower misses a payment. That will give him time to deal with
the problem or make back payments without having to repay the entire
If she's in no hurry to pay off the loan and doesn't
plan on selling or trading in the car any time soon, then a refinancing
is your fiance's only option to get out from under the loan. For
this to be a viable option, the mother's credit history will have
had to improve enough for a lender to be willing to loan her the
money without the son co-signing the loan. It's also important that
the loan balance is less than what the car is worth. Otherwise,
she's upside down in the car and won't be able to borrow enough
to pay off the current loan.
You're right to be concerned about how this obligation
will affect your ability as a couple to reach your financial goals.
Late payments and missed payments will show up on your fiance's
credit report and hurt his credit score, limiting his ability to
qualify for credit. Arranging a refinancing may be possible, but
if it's not then he needs to honor the commitment and ensure that
payments are made in full and on time.
-- Posted: June 26, 2002