co-signed, they defaulted: It's your loan, now
I co-signed on an auto loan for my daughter
who now has missed three payments on that loan. The bank is calling me, and I
have no idea where my daughter or the car is. How can I handle this with the bank
and also help to clear my credit report, which is showing delinquency in payments?
As a co-signer on your daughter's auto loan, you are responsible
for payment if your daughter defaults. Because you do not know how to contact
your daughter, the short answer to your question is that unfortunately, you will
need to make the past due payments to the bank. You will also need to continue
making payments until your daughter is able to do so.
on the bank, smaller may be better in this case, go in person to make the payment.
Ask to speak to the manager, explain the situation, tell them you are pleased
to pay the three payments (you can cross your fingers if you need to!) and ask
them to not report the account as past due. They may not have sent any data to
the credit bureaus yet and they might still be able to change it if they did.
a loan for someone, particularly a relative, is generally a bad idea. There is
usually a good reason why the lender won't lend the money to the person in question.
They know it, but often you don't. Co-signing is something that many people are
asked to do and that many end up doing to help out a friend or relative. The co-signer
feels good about the situation because he or she has helped that friend or relative
buy a new car, house or boat or receive her first credit card. What the co-signer
often fails to do is consider the consequences to her or his own finances -- and
Kathy, clearly, you are a generous, caring
person, so please review the list below of things to consider before co-signing
a loan, to better prepare yourself for the next time you are asked to co-sign.
Then read on for things to do once the loan is signed and the co-signer does not
fulfill his or her part of the deal.
What exactly does it mean
when you co-sign a loan?
- You are guaranteeing that you
will make the loan payment if the borrower defaults.
are saying you are willing and able to pay the full amount of the loan and any
late fees or collection costs.
- In some states, the creditor
can collect the debt from you without first attempting to collect from the borrower.
loan and any activity associated with it is listed on your credit report.
- Can you afford the monthly payment? Do not
co-sign a loan if the prospect of making the payment would put you in a financial
bind. No one has a crystal ball to predict the future. Plan as if the loan were
- Will the outstanding loan prevent you from obtaining
credit for yourself? Even though the co-signed loan is not for you, potential
creditors consider the amount of the loan as your credit obligation. Therefore,
you may have to postpone a mortgage or other large loan until the co-signed loan
is paid off.
- How well do you know the borrower? Keep in mind
that an institution that specializes in lending has turned this person down for
a loan. Don't help a bad credit risk at the expense of your own credit.
you have to secure the loan with your own property? The property used as collateral
could be lost if the borrower defaults. If it is an heirloom or otherwise important
to you, think twice or perhaps three times.
- How important
is my relationship with this person? A financial relationship as a co-signer could
ruin a personal relationship, especially if the borrower cannot pay. Trying to
preserve a personal relationship with a person who has a credit problem, by helping
them get more credit is a fool's errand. Help them live within their means or
correct their credit, but lending them your credit and personal financial guarantee
is a recipe for disaster.
borrower skips out:
- Make payments to the creditor
to protect your own credit. If the account is delinquent, try to bring the account
current as quickly as possible.
- Submit a 100-word statement
to the three major credit bureaus explaining why the loan is delinquent.
with the borrower and determine if he or she can begin to make payments again.
close track of the loan payments if the borrower does begin to make payments again.
moves us all to do things we would not ordinarily do. I hope you can work things
out with your daughter.
Debt Adviser, Steve Bucci, is the president of Money Management International
Financial Education Foundation. Visit MMI
for additional debt
advice or click here
to ask a debt question.