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The dangers of co-signing a loan

Posted by Cheryl Costa  January 9, 2009 10:39 AM

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I was engaged and agreed to help my future wife purchase a car. My credit was A-one and hers was not, so I was listed as the co-buyer in order to obtain better terms. The agreement, though not in writing, was that my fiancée would make all the payments until we were married. The wedding is now off and there is no continued relationship. My question is how I can protect my credit and revert the loan to my ex? I don't want the car, and I don't want the payments. I want to protect the credit history I have worked so hard to build. Any suggestions?

What's that old expression, "no good deed goes unpunished?" It's unfortunate that all you wanted to do was help someone out and now you find yourself in this bind. My hope is that your relationship with your ex is at least somewhat amicable because I think your only real option is to approach your ex-fiance and ask her to refinance the car loan.

She might be unwilling (and possibly unable) to do so because her poor credit history may make it difficult, or prohibitively expensive, to refinance. Hopefully, she will agree to at least try. When she refinances, she would apply for credit in her own name under whatever terms she can qualify for. When the new loan is approved, she can pay off the old loan and you will be removed as a co-borrower and your credit will be preserved (assuming all payments are current).

I understand that this is a very frustrating situation for you. You started with the best of intentions, but now you face the very real possibility of having your credit negatively impacted should your ex stop making payments. (In fact, even if she continues to make all the payments, having this loan outstanding may impact your ability to get a loan in the future.) Your situation is an almost textbook example of why a person should never co-sign for a friend or relative even when they are "sure" that everything will work out just fine. If you agree to be a co-signer for someone, you must be fully prepared and willing to pay off the loan. If your budget or personal circumstances won't permit that, you should decline to be a co-signer.

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