Dear Driving for Dollars,
I bought a car 10 months ago, but since my credit wasn't really established, my boyfriend's aunt co-signed the loan for me. The dealership said it would be better if she was listed as the primary borrower and myself as the co-signer, so we agreed. I have not missed any payments nor have I ever been late.
Now the aunt is going through some financial problems and wants her name off the loan. She wants me to refinance, but I can't. Even though my credit score has come up, I recently lost my job, so I know I won't qualify. She is threatening to do a voluntary repo if I don't. Can she do that even though I'm a co-signer and my payments are up to date?
-- Miss M
Dear Miss M,
It's always tricky when two unrelated parties end up as co-signers on a loan, but this situation is really an unusual one. First, kudos to you for keeping current on your car loan payments. Please continue to make that a priority, since getting behind on your car payments will work to your co-signer's advantage.
It's hard to know for sure whether the aunt has a leg to stand on. It sounds like she is listed first on the loan with you listed second, which sounds more like you are co-owners. In many co-signing situations, the person who needs the credit help (in this case you) is listed as the owner, and the person listed as the co-signer is not listed as the owner of the car (when the loan is paid off), but is simply accepting responsibility for the loan should the primary signer be late or miss payments. If, indeed, you are listed as joint owners of the car, then it is less likely that legally she can take the car away from you.
What I am puzzled about is why she is asking to be removed from the loan in the first place. With you being current on the car payments, you are effectively boosting her credit score, so if her financial troubles are causing her to be behind on other payments, the fact that this one is current is helping her. It could be a factor if she is trying to get another loan and her debt-to-income ratio (a factor in how the credit score is calculated) is too high for her to get a good interest rate.
Your best bet is to call the lender that the auto loan is with and talk to a representative. He can tell you whether the two of you are on equal footing when it comes to owning the car down the road, which will help you understand your legal rights. You don't need to explain the entire situation -- just ask them to clarify how the co-signing process works. While you are at it, ask them about refinancing, either with another co-signer or on your own, so you can understand your options now and in the future when you have another job.
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One more thing to keep in mind: A "voluntary repossession," as you called it, would require the car to literally be turned in. Since the car is in your possession, that would require the aunt to obtain the key and drive it to the lender to turn it in (most likely at a specified location, not a bank itself). She can't simply call up the proverbial "repo man" to get the car towed away when you aren't looking, as that would require official paperwork from the lender. That scenario doesn't sound very likely, so it is possible that her comments are just threats meant to manipulate you into removing her from the loan. While you probably do want to get her off the loan as soon as you can, she really may not be able to do anything about it, as long as you keep current on your payments.