STOP CO-SIGNING ON AUTO LOANS!!
A number of our clients come into the office because of a lawsuit they are facing. Now, some of the time the debt isn’t even “their debt”. Rather it is debt from them co-signing on an auto loan for a son, daughter, brother, sister, relative or friend.
What is co-signing?
Co-signing is a term used to describe when more than one person signs for a loan. Frequently, if someone has poor credit, an auto lender will ask the person to get a co-signer because their credit is not good enough to get the loan by themselves.
At the request of an auto lender like Gateway Financial, Credit Acceptance, or Reliable Auto Finance, the person will typically ask a parent, brother, sister, relative or friend to co-sign the loan. This allows the person to get the vehicle they want. However, it’s a terrible idea for the person who co-signs.
The person who co-signs on the loan is not getting any benefit. They do not get any money and they do not get to use the vehicle. The only benefit is they are doing a “favor” for someone else to allow them to drive a better vehicle.
Now, it sounds like a nice thing to do for someone you care about. Why not let them enjoy the benefits of your good credit? The problem becomes when the person loses a job, gets in an accident and fails to pay on the auto loan.
Now, missed payments are going to start hindering your credit score. You’ll probably start receiving calls from the auto-loan company and they may even repossess the vehicle. If the vehicle is repossessed you will now have a repossession added to your credit report. The vehicle will be sold at an auction and both the co-signer and original person will be liable for the auto loan deficiency. The auto loan deficiency is the difference between the amount owed on the vehicle and what it sells for at auction. For example, if you owe $10,000 on the vehicle when it is repossessed and it sells at an auction for $4,000 then the auto loan deficiency is $6,000.
Both people who signed for the loan are each 100% responsible for the $6,000 and the creditors are often quick to start collecting. This means the auto lender can try and recoup all of the funds from one of you individually.
You can be sued first!
Our clients are often amazed when they are the first one sued by the auto lenders even though they are the co-signer, not the primary signer. The auto lender is well within their rights to sue either party for the auto loan deficiency. Often times the auto lender will sue the co-signer because they have better credit and are more likely to pay the debt back.
If neither of you are able to pay the debt back then the car company may attempt to satisfy the debt in other ways such as garnishments or seizures of property.
These collecting attempts can be stopped by filing for bankruptcy. However, even if you file for bankruptcy, the primary signer will still be liable for the debt.
While the original intent was to help out a friend, it leads a number of people to contact our office because they are being sued for large sums of money.
We rarely, if ever, recommend people to co-sign loans for anyone – the rewards rarely outweigh the risks!
If you have co-signed on an auto loan and owe a large debt, contact our office at 248-237-7979 to set up a free consultation.