Bringing up a credit score after Repo Man

[Scanner]

I have a friend who co-signed a loan for her son - an auto loan.

Lotsa drama later, the car was repossessed and the loan went into deliquency. Of course, she wasn't notified until the car was repossessed and the creditors started calling her and tracking her down.

The car is worth about $3000 but the debt is $6200.

Her credit score, which was around 720 has now plummetted to 540 in that short of a time.

Because it has taken a hit, she reasons that she should not satisfy the debt (among other reasons). But wouldn't satisfying the debt help her credit score at least a little?

I can understand her dilemma - she's being forced to pay $6200 for a $3000 car but. . .but. . .the son did get to use teh car on front end of the depreciation. I mean, in essence, every auto loan is an upside down loan (at least 80% of the life of the loan, until it's near paid off).

Anybody been through this kind of thing?

[woodie96]

Scanner, It sounds like you are leaning towards her paying the debt, which I also agree would help her to re-establish her credit rating.
Just ignoring it and hoping it will go away will not help at all. The debt will keep getting larger and larger I would think with penalties and interest, etc.
Could your friend possibly settle the difference amount for less? Just a thought.

[disneysteve]

Her credit score, which was around 720 has now plummetted to 540 in that short of a time.

Because it has taken a hit, she reasons that she should not satisfy the debt

That's a bunch of BS. She borrowed the money. It is her legal responsibility to repay the money. What has happened to her credit score is of no relevance here. If she didn't want to repay the loan, she shouldn't have signed her name to it. Too late now.

[dczech09]

This is why a lot of financial gurus are against co-signing. I understand her wanting to help her son out, but if she was not ready and willing to accept consequences of deliquency, she should not have signed on the dotted line. If she wants to stay away from the courtroom and not get harassed by collectors, she must pay. Lesson learned.

[Broken Arrow]

Just checking, but under who's name(s) is the title under?

If it's just her, legally, it's her financial responsibility. And since you guys are divorcing, it would seem that you are no longer reponsible for her... responsibilities.

However, if your name is also on there anywhere, then that's a very different story.

[Scanner]

Broken Arrow,

This is actually just a friend, not the wife. . .I am not sure who the title is under - I think the son. . .she was just a "co-signor" or maybe the better word is "guarantor."

And yes, that's exactly what has happened - she has gotten harrassed by creditors, etc.

She got talking to the private investigator who tracked her and her son down (the son is 24 - has a drug problem) and he was the one who actually advised this - to just "let it go" as he does this kind of business all of the time. I didn't say it but I think it was bad financial advice.

I am not sure she can even get further loans if there is an outstanding debt sitting there on her credit record (may be against bank regs. . .maybe not private financing co.'s) - any loan officer/loan broker is going to want to see the loan satisified, right?

I realize though if lenders only did business with responsible people, they'd be out of business.

[Scanner]

DisneySteve,

In her defense, she was not even made aware that the loan was in deliquent status until the car was repossessed. I do feel bad for her in that regard. Her credit was in the 700's as she always pays her bills and always has. . .I think she's just confused and angry right now vs. being irresponsible.

It seems like if there is a co-signor, if the borrower starts to be late on payments, hte co-signor should be notified before the matter is reported. . .but I guess it doesn't work that way.

If I ever co-sign for a child, I think I would just have them make loan payments to me to ever avoid this kind of catastrophe (and let's face it - I know all the financial gurus say "Don't co-sign" but how realistic is that kind of advice, when you often have children trying to gain their footings in their early 20's?

I think there's some sort of compromise to that kind of advice.

[dczech09]

I agree there is a compromise: A) only cosign for the child if you are willing to assume responsibility for it and B) make the judgement of whether or not you can trust your child to pay the loan. Sadly, there are people that cannot trust their own children. Now, I don't speak from experience; however, my father cosigned a car loan for me (student loans too) and understands that he has to assume responsibility in the event that I don't make my payments. Lucky for my dad, I know what I am doing but other parents may not be so lucky as a lot of people in their early 20s dont understand personal finance because public schools have failed in that area.

[wincrasher]

That's the downside of co-signing any loan.

The amount borrowed goes against your ratio. If they pay late, that hits your score. If they don't pay at all or are repossessed, then you get the same hit.

If you are going to go into such an arrangement with someone, it's much better for you to make the payment yourself, and the other party give you the money each month. That way you are in control of your credit record.

She does have recourse in court against her son for non-payment. The world in which kids do this to their parents is the same one where parents sue thier kids. Sad.

[disneysteve]

In her defense, she was not even made aware that the loan was in deliquent status until the car was repossessed. I do feel bad for her in that regard.

It seems like if there is a co-signor, if the borrower starts to be late on payments, hte co-signor should be notified before the matter is reported. . .but I guess it doesn't work that way.

I know all the financial gurus say "Don't co-sign" but how realistic is that kind of advice, when you often have children trying to gain their footings in their early 20's?

Did she ever ask him how things were going with HER loan? Did she ever check if the payments were being made on HER loan?

I don't buy that you have to cosign for a kid. Let them buy what they can afford. Or help them pay for something. Just don't. Cosign for them. If you must cosign for some reason, you should get the statements, not the other person. And never cosign if you are not willing AND able to pay the debt.

[Scanner]

I wasn't saying you have to do anything. . .I am just saying that the financial guru advice of never co-sign a loan is a bit unrealistic.

What %age of co-signors end up screwed, I am not sure. . .we only hear about the bad stories like this.

I am not sure how large the original loan was. . .if there is $6200 left on it, something tells me it was originally $10,000 or something. Does a kid just starting out in his 20's need a $10,000 car when my last car cost $5000? I don't know. . .hard to say. I am in the market for another car and I would probably spend $5000-6000. . .this other friend told me I should spend more than that. Why, I am not sure. . .I think some people just never drive old cars but I am a divorcing, stressed out father. . .I should live in a trailer and drive an old car, lol.

She is trying to get her "kid" (he's 24) into drug rehab so I don't think sueing would help - you can't get money from a stone and I don't think that helps restore her credit score.

I think the issue here was the loan company did the damage (went nuclear on her credit score) before she could pick up the couple of late payments (he hadn't made a payment in 90 days). I guess I would be angry too. . .mostly at the son, but also of why she wasn't contacted. . .she probably would have assumed the payments but now that they've gone nuclear on her. . .well. . .her reasoning is, "What's in it for me now to satisfy the debt?"

I am not justifying her position. . .just relaying it.

[disneysteve]

I am just saying that the financial guru advice of never co-sign a loan is a bit unrealistic.

All rules of thumb have exceptions when they don't apply or don't make sense to follow.

What %age of co-signors end up screwed, I am not sure. . .we only hear about the bad stories like this.

Good point. Just like with "never lend money to family". I'm sure there are plenty of times when people lend money to family and have no problems. That doesn't change the fact that as a general rule, it isn't such a great idea.

Does a kid just starting out in his 20's need a $10,000 car when my last car cost $5000?

Of course he doesn't. He needs a car he can afford.

She is trying to get her "kid" (he's 24) into drug rehab

I wonder if she knew he was on drugs before she co-signed for him.

I guess I would be angry too. . .mostly at the son, but also of why she wasn't contacted. . .she probably would have assumed the payments but now that they've gone nuclear on her. . .well. . .her reasoning is, "What's in it for me now to satisfy the debt?"

I kind of think there should be some means of notifying both people on the loan when there is a late or missed payment, but on the flipside, that isn't really the lender's responsibility. She took out the loan so it is really her responsibility to make sure it is getting paid. It is no different than all the stories we hear of one spouse finding out that the other spouse wasn't paying the bills and now they are losing their home or having the power turned off. My wife's name and my name are both on the mortgage, but I get the statements and make the payments. If I stopped paying for some reason, my wife wouldn't know. The lender wouldn't contact her separately.

[cptacek]

She signed the papers. She needs to pay. What did she think her signature meant on those papers? This is the exact reason the lender wanted a cosigner...in case the kid didn't pay, which he didn't. They did a good job of assessing the risk of loaning money to a young drug addict, but she didn't.

My dad cosigned on my first cattle loan. I think it was for $56,000. He put the whole farm down as collateral (any bank loan had the entire farm as collateral, so this was just added on). After a few years, I wanted to buy more so I refinanced the original loan with the new balance and since my net worth had risen, I didn't have to have him cosign any more.

Of course, he had the cows, so if I hadn't paid, they would have gone right to the sale barn and he would have put that money towards the loan. But it worked out fine for us.

[Scanner]

I think there's two issues here - the woulda, coulda, shoulda issue. . .we all agree in retrospect, co-signing was a bad idea.

The question is, if this happened to you - what would you do? WOuld you pay $6200 and all kinds of penalties for a $2000-3000 car? Not only that. . .but when she takes posession, I guess she has to insure it at least until she liquidates it.

As tough as it would be, I probably would. I am not sure of the "formula" but satisfying a debt has to look good on your credit score and could get her out of the 500's. (just a guess)

The creditor has threatened a lien on her house from this. . .she believes from talking to this investigator that they are bluffing, that they won't expend the time/energy to do this.

My knowledge on liens is they are fairly easy to execute. . .you just go down the courthouse, pay $50 and present your case that you have an outstanding debt. Boom! Lien on your house (unless you can contest it at the hearing).

I'll try talking to her.

[disneysteve]

The question is, if this happened to you - what would you do? WOuld you pay $6200 and all kinds of penalties for a $2000-3000 car?

That's an easy question. Yes, absolutely. If I borrowed the money, I would repay it. Plain and simple.

I think the problem here is that she still isn't looking at this as HER loan and HER responsibility. When you co-sign on a loan, you take equal responsibility as the person for whom you are co-signing. Somebody needs to repay the debt. If it isn't the other person than it needs to be you. I think far too many people co-sign without fully understanding what co-signing actually means.