Dear Dr. Don,
Without getting any facts or advice, I decided to co-sign on a car loan for my brother. He has yet to make a payment, and the bank is now asking me to make a payment instead. I currently have excellent credit, and I have found out that my name is not on the title.
My brother has now taken the car out of state and no one knows how to reach him. Is there anything I can do?
-- Troubled Tori
Dear Tori,
You can start making payments. When you co-sign a loan, you agree to be responsible for that loan. The only way out is to have your brother refinance the loan without you as a co-signer or to pay off the loan. If the bank repossesses the car, it will hurt your credit as badly as it hurts his credit.
Because you're not on the title, you don't have ownership interest in the car. That's a mixed bag because although it keeps you from being liable for tickets and accidents, it leaves you without anything to show for those payments.
If you can't afford the payments, the bank will attempt to repossess the car. Your financial responsibility in a repossession varies by state law. But in some states, you're responsible for the difference between what the car sells for at auction and what you owe the bank for repossession costs, auction expenses and the outstanding loan balance. Your state's consumer protection agency can provide additional information.
Repossession is very damaging to your credit history and stays on your credit report for seven years. However, if the car is repossessed, you won't have to make all the remaining payments. Because your brother left the state with the car, a voluntary repossession appears to be out of the question.
There's no easy way out of this mess. Either take the financial hit by making the payments, or the credit hit -- and perhaps a lesser financial hit -- by letting the car be repossessed.
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