||Ask Dr. Don
Repossession's effect on the
Dear Dr. Don,
I co-signed a car loan for my daughter about a year ago. At the
time, she had a good job and was living with me. She has since lost
that job, is pregnant and can no longer meet the loan payments or
the car insurance payments. My husband has also been out of work
for seven months and my salary just cannot cover everything. My
plan is to voluntarily surrender the vehicle. As a co-signor, how
does this affect my credit rating?
As co-signer the voluntary repossession will show up on your credit
report, too. A voluntary repossession is marginally better than
an involuntary repossession but still is a big negative on your
credit report. It will stay on your credit report for seven years.
When a car is repossessed the lender normally sells
it at auction, getting a fair wholesale price for the vehicle. (Laws
concerning repossession vary by state but this practice is common.)
You and your daughter will owe the difference between the loan balance
and the auction price, plus any costs the bank incurs in the repossession
and sale of the vehicle.
If you have the cash available to pay off the loan
balance, you're much better off selling the car yourself. That's
because you should be able get a higher price for the car by selling
it on your own and you don't have to pay the repossession and auction
costs. Use Edmunds
or Kelley Blue Book
to get a sense of the car's wholesale and retail value.
If you have more equity in your own car, then
selling it and keeping your daughter's car while taking over the
payments would reduce the amount of cash, if any, you need upfront.