     Brian Malec | Tuesday, December 14, 1999 - 09:17 am 
I have a friend with bad credit who recently asked me to co-sign for her to get a new car. I trust that she will make her payment on time every month, but I have concerns. To this date, I have very good credit. Will being a co-signer show up on a credit history report? Will this have any effect in getting a loan or a good interest rate on a loan in the near future? I will be looking for a new truck next year and I'm concerned that by helping out my friend, I may be hurting myself down the road! I'm looking for good expert advice on this one.
Brian |
| Anonymous | Tuesday, December 14, 1999 - 10:47 am
Brian,
Yes, it will show up on your credit report. It may very well effect you getting a loan in the near future because that payment will be taken into consideration when they are trying out whether or not you can afford to make the payments on you new truck. In addition, if she does not pay, the late payments will show up on your credit report AND if she defaults, they are going to come after you for the money.
Little piece of advice, NEVER cosign a loan for anyone, especially soemone with bad credit. DONT DO IT |
| Sean | Wednesday, December 15, 1999 - 04:33 am
Well, I wouldn't go that far as to say NEVER co-sign for someone, but I will say that most people don't handle co-signings properly.
Most of the time the person just signs that they agree to be responsible and then pay no more attention to the matter until they discover massive damage has been done to their credit report.
The proper way to co-sign is to make all the payments yourself and to have a written agreement from the person you co-signed for that they will pay you a certain amount each month.
The advantages of this are two-fold. First the payments are always made on time so your credit doesn't suffer, and secondly if you later apply for credit and the bank is trying to figure out how you have enough income to handle this debt you whip out your written agreement and show that another person reimburses you. Keep photocopies of all the checks from this person. That usually satisfies underwriters. |
| rcb | Wednesday, December 15, 1999 - 04:41 am
Agreed. Most IGNORANT consumers sign and forget.
I don't agree with the "you make the payments" statement, though. If this is a young adult that you are co-signing for (which is usually the case), then that person needs to learn the responsibility of receiving the bill, writing the checks and mailing the payments out on time.
If you perform this activity, then that young adult will never learn what it's all about, and will never really understand what it's like "on his/her own".
If you feel better, keep an eye on the account - call the creditor on the payment due date or call the young adult and ask him/her if the payment was made. In the latter case, if you don't trust the person enough to tell you the truth (i.e., "I don't have the money this month"), then you should not have co-signed for him/her in the FIRST place. |
| Sean | Wednesday, December 15, 1999 - 06:51 am
Your suggest that you just "keep an eye on it" is impractical. A person should not assume risk unless they have control.
And you'd better believe if someone does business with me they'll understand the responsibility of receiving the bill, writing the checks and delivering the payment on time. All of my installment contracts include late fees and I levy them every chance I get. No exceptions.
Furthermore I am taking a greater risk. I expect to earn a spread. If I co-sign for someone at 12% interest I charge them 13%
That's the American way. God bless America. |
| Anonymous | Sunday, December 19, 1999 - 04:20 am
My suggestion is don't do it. Even if you're married to the person, you don't know what's going to happen in the future. Do you really want to be connected to this person for 5-6 years? It happened to me and while I didn't want to do it, my husband persuaded to me co-sign for him. Now because of various things he has done, we're getting a divorce and I can't get this car out of my name. His credit still isn't good enough to refinance. The only recourse I have is to take both his and my vehicles, trade them in on a new one for me and swallow anything I'm in the hole on. Anyone got any ideas on this one. |
| Kristy Welsh | Monday, December 20, 1999 - 08:39 am
If you're a co-signer, how do you collect extra interest? A co-signer signs the same paperwork as the primary signer, there is no different in interest rate or terms. As a matter of fact, there is no difference between the signer and co-signer in the eyes of the creditors at all. If you have a separate arrangement with the primary person on the account, that's totally different.
I would also say that unless you're married don't do it, especially if you as the co-signer doesn't live in the same house as the "primary" signer. If the primary person doesn't pay on time, they are not necessarily going to notify the co-signer, they are under no legal obligation to do it. I know of more people who have had their credit ruined in this manner. |
| Sean | Monday, December 20, 1999 - 09:41 am
First of all, I don't know the best way to do it with car companies because these people are not going to understand what you're doing or why you're doing it and they'll either flash you a deer-in-headlights look or they'll fight you over it.
With a real estate deal, though, it's pretty easy. Let's say you want to purchase a single family residence and you want me to be the cosigner. I agree, and dictate the terms of the deal, as follows:
1. We will take title as "Sean R. Feral a single man and Kristy Welch, as tenants-in-common having a joint venture agreement."
2. The joint venture agreement stipulates that I made 99% of the down payment and you made the rest and that I own 99% of the property and you own 1%
3. The property is resold to you in the same closing (just tell the title company you're doing a double close and they won't close the title insurance policy until after the second close). I'll take back financing, in my state this is called an all inclusive trust deed (AITD) and in some states it's called a wraparound mortgage. This does not trigger the due-on-sale clause because you're already an owner of the property.
Here's an example: You find a $100,000 property you want to buy but you can't qualify. I'm your cousin and I agree to help you. I cosign and we get the loan for at 8% with 15% down (original loan is 86,275 after 1.5 points) and 360 payments of $633.06 and I resell the property to you on an AITD for $100,000 with 15% down at 10% interest (361 payments of 745.61). That means after I make my $633.06 mortgage payment I have $112.55 left over, 1% of which is yours, but we're going to set that money aside in a bank account until we have six months reserves.
If you stop paying, I have to keep up the payments on the underlying note and foreclose you out, but if you pay regularly for a year before needing foreclosure that means I've accumulated $1,350.60 in reserve funds, that'll see me through 2+ months worth of payments, plus considering we're family perhaps you have the ability to keep up, but you can't catch up and we can renegotiate.
Also note a good tip if you're going to do this is to prepay a half a month's worth of interest to the bank in escrow to move your payment date to the 15th instead of the first. That way the money to you will come in on the first (the 10th if they're late) and you don't have to pay it out until the 15th. This is also a good policy in rental property -- have the rent come in on the first and your payments go out on the 15th. |
| kristy welsh | Tuesday, December 21, 1999 - 05:24 am
Well, co-signing has nothing to do with trust deeds, interest rates or anything else, it's just basically taking responsibility for a loan if the "primary" doesn't pay. Again, the co-signer is fully responisible for the loan as if they were primary. |
| Sean | Tuesday, December 21, 1999 - 07:10 am
And *IF* you are a co-signer then *YOU* should be making those payments and collecting the money from the other parties involved. Otherwise you are giving all control over your credit rating to someone who has proven that they don't have sufficient competence to handle their own. |
| Anonymous | Tuesday, December 28, 1999 - 05:50 am
My son-inlaw has co-signed for someone who has vacated the property. He can salvage it by paying back payments. What legally needs to take place for him to move into the property and resume making payments? Does he have to refinace? Can he just take over making payments since he is the co-signor? What is on the deed?..Is he co-owner? |
| Sean | Tuesday, December 28, 1999 - 10:21 am
Your son-in-law should have the other person involved in the deal sign a quit claim deed on the property which will give the ownership of the property entirely to your son-in-law.
He can then make up back payments, and perhaps sell or rent the property to recoup his losses. |
| kristy welsh - creditinfocenter.com | Thursday, December 30, 1999 - 03:51 am
To find out if he is on the deed, go to the county recorder and find out who is on title for the property, the country clerks will know how to do this. If he is indeed on the title, then yes, he can recoup the property and make the payments, but the person who is the primary signer of the account is still half owner of the property. It may be better than having negative credit on his report. If he's not half owner (not on title), your son-in-law is still going to have messed up credit, even if he recoups the loss now and brings payments current.
Sean: I agree with you, if I were co-signing for anyone but my husband, I would make all the payments myself to make sure the payments were being made on time. Unfortunately, most people don't do this when they co-sign a loan for a friend or relative, they are just trying to help out. They just don't realise the responsibility they have just taken on. I'm sure you'll agree, it isn't a requirement for the co-signor to pay, and again the bank doesn't even have to notify a co-signor if things are in arrears. |
| Sean | Thursday, December 30, 1999 - 04:58 am
Co-signing is very dangerous. I can come up with at least 10 different ways that it can go bad -- for both parties.
Never ever co-sign an open-ended, credit card or revolving account. You'll literally be on the hook for this person indefinitely.
Be very, very cautious when co-signing an installment loan. When a co-signed account goes bad it can ruin friendships and family ties. |
