Dear Driving for Dollars,
My mother-in-law co-signed on a new auto loan for her granddaughter. The granddaughter never made a payment and returned the car to the dealer. Now my mother-in-law is receiving letters from a collection agency. Can they really demand payment on the returned car?
It’s most likely that the lender can demand payment on the returned car. When the granddaughter bought the car and drove it off the lot, it immediately depreciated in value. Even if she returned it quickly and with almost the same mileage, the car can no longer be sold as new and, therefore, has less value. At a minimum, the lender has a right to be reimbursed for the difference between the car’s sale price and its used-car value when it was returned as well as any fees or taxes that were rolled into the auto loan.
Since your mother-in-law co-signed the auto loan, she is legally responsible for the loan on the returned car. And her credit, as well as the granddaughter’s, will be hurt if she ignores the collection agency. Depending on your state as well as how and when the car was returned, this may be viewed as a repossession on both people’s credit reports. Even though the car was returned voluntarily, it can still seriously damage both parties’ credit scores.
Have your mother-in-law talk to the collection agency as soon as possible to mitigate the damage.
Ask the adviser