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Co-signing too risky for professionals

Don Taylorq_v2.gifDear Dr. Don,
My son wants me to co-sign for a car loan. Am I legally responsible to pay the payment if he can't? I'm married, so can they go after my husband, too?
-- Elaine Inquires

a_v2.gifDear Elaine,
If you co-sign the loan you are equally responsible for the payment. My favorite quote on the topic comes from the FTC Facts for Consumers publication, "Co-signing a Loan." It says, "When you're asked to co-sign, you're being asked to take a risk that a professional lender won't take."

The publication goes on to state, "In most states, if you co-sign and your friend or relative misses a payment, the lender can immediately collect from you without first pursuing the borrower. In addition, the amount you owe may be increased -- by late charges or by attorneys' fees -- if the lender decides to sue to collect. If the lender wins the case, your wages and property may be taken."

You and your husband have separate credit reports. As long as you're not in a community property state, you don't have to worry about your son's late payments impacting your husband's credit history. The community property states are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin. Alaska allows couples to elect community property treatment.

You may be doing your son a favor by co-signing, but there are big consequences to you if he isn't able to make the payments according to the terms of the loan agreement. Any late payments show up on your credit report, and you are equally responsible for the loan payments.

Bankrate's content, including the guidance of its advice-and-expert columns and this Web site, is intended only to assist you with financial decisions. The content is broad in scope and does not consider your personal financial situation. Bankrate recommends that you seek the advice of advisers who are fully aware of your individual circumstances before making any final decisions or implementing any financial strategy. Please remember that your use of this Web site is governed by Bankrate's Terms of Use.

Read more Dr. Don columns for additional personal finance advice. To ask a question of Dr. Don, go to the "Ask the Experts" page, and select one of these topics: "Financing a home," "Saving & Investing" or "Money."

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