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Ask Dr. Don

Repossession's effect on the co-signor

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?
Denise Duet

Dear Denise,
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.

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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.

-- Posted: Feb. 7, 2003
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