Is cosigning car loan different from cosigning other loans?
Q: I am thinking of cosigning a car loan for a friend daughter who is finishing college. Friend's credit rating is poor. When I raise my doubts and objections, she tells me that cosigning a car loan is quite different than cosigning a mortgage or a apartment lease. She also insists that my name can be removed from such a loan after 6 months of her daughter's ontime payments.
A: Wrong. The only good thing of cosigning a car loan is the short time the loan is repaid. 72 months is the longest, so you pray and hope that nothing bad comes out, and person you cosigned for is fiscally responsible. If not you will be. Read Cosigning a Loan - Things to Consider Before Cosigning but in nutshell here are few important key points that are very relevant for any cosigner on any type of a loan -
- once you cosign, lender treats this car loan as yours for entire length of repayment
- lender can sue you and obtain a judgment against you in case of a loan becomes delinquent
- lender will check your credit and verify at least some of your assets
- loan will be reported on your credit report with COSIGNED notation, showing monthly payments, outstanding amount, loan status
This last point means that monthly payment on a car loan will be counted as yours, affecting you borrowing ability, in particular if you apply for a new home loan. If you decide to refinance in a near future with rates as low as they are and likely going lower, make sure you are still qualified with cosigned monthly payment included. You may have to refinance before cosigning loan.
If the daughter of your friend defaults, it will surely hurt your credit history and scores. That in return can be used by your current lenders to raise your interest rates on existing revolving balances. If you are making payments on 0% interest credit cards with some hefty balances, read the disclosures carefully to check if going in default on any other loan may trigger higher rates and/or fees on such existing credit cards.
As you can see cosigning a car loan makes you a cosigner, period. With all the potential troubles to come and no added benefits whatsoever, other than feeling good that you help your friend. If you feel like playing Good Samaritan and the young lady is responsible, then ... it is entirely up to you.
Sun Jan 4, 2009 07:01AM | Copyright: www.bad-credit-advisor.com | More in Credit Repair Tips | Comments (0)
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