Help! I co-signed on a loan and now I wish I hadn’t!

Ah, relationships. Without other people, money management would be easy! Easy-er, anyhow. But love, family, and business relationships tend to make people do things they know they really oughtn't.

Take Patrick, for example. He fell in love, and it led him to commit a financial faux pas. Here's Patrick's l-o-n-g story and his questions:

A couple years back, I met a girl, fell in love, and we moved in together. A few months into our cohabitation, her car died. Since we needed to separate cars for work, we went to a dealer to see what she could find in the way of a used vehicle.

After a long time sitting in an office, test driving a car, and running her credit (which was not very good), the dealer came back with an offer sheet for a high-interest, short-term loan with a payment of $750 a month, an impossible figure to work into her budget. She asked for a different deal, and they said, “This is the best we can do without a cosigner.” Hearing my cue to play the role of the “hero,” I stepped in, which cut the interest dramatically and the payment by half.

Now for the moment you've been waiting for: My girlfriend decided to move away, and she ended up in a different time zone. We stayed together for a bit, but realized it wasn't going to work long distance and broke things off.

Following the break up, the situation with the car deteriorated. After never missing a payment before, she's now only made one payment in full and on time — and she's been gone over a year. Several times, she's been over thirty days late on payments, and my credit has already taken a hit (though it's still listed in the good/fair range).

But there have been other issues with the car. She lapsed on insurance once and neglected to tell them about a change in insurance another time. Both times, they took out insurance on the car at an astronomical rate for the times it looked like the car was uninsured and that money's been added to the principle. She also neglected to register the car after she changed states and the registration on the car in my state expired more than ten months ago. For that time, she's been driving around in an unregistered vehicle in both of our names.

I've contacted her to try and see when we're going to get back to smooth financial sailing, but I get only false promises. She tells me she'll make a payment on time, and then I'll get a call ten days later from the bank saying it's past due.

It does seem like she's trying at least, and even though the payments come late, they do eventually come. I've suggested she sell the car, even if it is at a loss, but she's not taken any action. The latest plan is to have another friend refinance it with her and get my name off the car, but that friend (who is financially solvent enough to pay off the whole car if necessary) has not yet stepped up to do so. Nothing I say to her has compelled her to do anything but give more promises.

So, fellow readers, what do I do? How do I untangle myself from this financial web to which I'm legally tied? Can I do anything at all? Or am I just a cautionary tale? Feel free to call me names. You can't think me stupider than I've thought myself over the past year, so I am unafraid. The frustration and stress seems to be at a point where I need to find a solution, and not just label myself as “bad with money.”

Ah, Patrick. I feel for you. I really do. While I've never been in this situation, I know people who have. (One member of my family loaned another $20,000 and has never been repaid.) Plus, I've done some stupid things myself. I once shared an apartment with my cousin for a few months, and I'm fairly certain I never paid my share of the rent for part of that time. (It was almost 20 years ago, so I've forgotten the details.)

It's important to note that not every financial transaction between family and friends ends in disaster. In fact, although there aren't any stats on the subject, it's likely that most transactions go smoothly. But the potential for trouble is so great that you should think twice — or thrice — before lending (or borrowing) money. Or co-signing on a loan. Ask yourself what would happen if the borrower never repaid. Or, as in Patrick's case, the co-signer left town. How would it affect your finances — and your relationship?

You're usually better off saying “no” rather than putting yourself in a position where you have to hound a friend for money. Which would make you feel worse: the momentary pain of telling a friend “no”, or the ongoing anguish of having a languishing loan destroy a friendship?

Despite these warnings, there are times we're tempted to lend money to people we know. When this happens, be smart about it.

  • First, discuss other options. Is there some other way you can help other than giving money or co-signing on a loan?
  • This is important: Only lend money you can afford to lose! You may never see the money again, so don't put your own financial well-being on the loan just because your girlfriend can't afford a new car. (Sorry, Patrick.)
  • Be clear about expectations. Draw up a payment schedule and discuss what happens if something goes wrong.
  • Get it in writing. Don't just hand over money without some sort of record. You can find all sorts of legal templates online. Use them.
  • Deal with problems immediately. You may feel like a nice guy by not reminding your borrower that they're 30 days past due, but you're just setting yourself up for trouble. Communicate.
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Having said all that, these guidelines don't help Patrick solve his problem. These are things he should have done to avoid trouble in the first place. To be honest, now that he's in trouble, I don't know what his options are. Do you?

Have you ever loaned money to a friend? Co-signed on a loan? How'd that work for you? What sorts of legal protections did you take? If you've ever been in a situation similar to Patrick's, how did you resolve things? Does Patrick have any legal recourse to repossess and then sell the car? How can he go about getting his ex-girlfriend to prioritize this debt?

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PMT
PMT
10 years ago

I have loaned money to family three different times and it has been problem all three times. However, the difference being I never co-signed and never lent more than I could afford to lose. Unfortunately Patrick I think you’re out of luck here. Other than continually following up each and every month there’s isn’t much you can do. If you’re name’s on the car title you might have some legal recourse to sell or take physical possession of the car but you’d need to speak with a lawyer on that one. Aside from that I think you’re walking away with… Read more »

S
S
10 years ago

“and we moved in together.” First major mistake! You aren’t ‘bad with money’ – your judgement was clouded by lust.

Call the cops, report the car as stolen and once you have possession, sell it or return it to the dealer. Have her sign the title over to you. If she gets in an accident, you may have an even bigger headache.

Patrick, end this today. She is still using you and you are letting her. Man up and move on.

shash
shash
10 years ago

I think you should see a lawyer. He or she will probably be able to give you options that we had not though of. Ex-girlfriend, friend or no— every payment she does not make is ruining your credit. And, that is not a very nice thing for an Ex-girlfriend, friend or no to do. She may need the car, but it does not seem as if she is making the efforts required to own this car. Even though it’s hard to be tough with friends, family, etc. in these types of situations– you have to think of you and your… Read more »

Dink
Dink
10 years ago

Well if you’re debt free, live within your means, and don’t see yourself needing a loan in the next seven years, you could let the bank repossess it. You’ll take a hit on your credit score but if you don’t need credit you’ll be fine. Who needs a credit score if you pay for everything in cash? It’s a hard lesson, but a lesson learned.

Claudie
Claudie
10 years ago

You said your name was on the car, so if you do have your name on the title you will probably be able to take possession of the car and then sell it or do whatever you want. I’m not sure how one would go about that, though. Be prepared to never have a friendly word between the two of you again though. Even though you have the legal right to, she’s probably going to be pretty angry. Of course, I’d be pretty angry too if I were you.

Seamus
Seamus
10 years ago

S… I think that is bad advice. Reporting a car stolen would only get Patrick in trouble. That is filing a false report with the police. She has every right to be driving that car. The police would pull her over and see her name on the title too. That would do nothing but compound his problems. If she didn’t move far away, he could call up the local PD and explain the situation of registration and insurance. This would create legal problems for his ex, but more than likely the car will be impounded and Patrick can, as a… Read more »

peachy
peachy
10 years ago

Why would you have a friend try to refinance it with her? Then you and your friend would be stuck. No wonder your friend hasn’t contacted you. He/she doesn’t want to get stuck dealing with YOUR ex gf while he has a new headache on his hands, and you’re off the hook. I would go pick up the car and sell it as others have said. Stop making excuses for her. When you say ‘it does seem like she’s trying’, that’s an excuse. If she was trying, she’d be paying her bills. It seems that you have learned your lesson… Read more »

Leigh
Leigh
10 years ago

Yes, the only recourse at this point is through legal means. I would get to a lawyer immediately and discuss options for taking control of the vehicle, selling it, and paying off the loan. Since you cosigned the loan, you are financially liable for payments and will not be able to file any claim against your ex to get money back that has been lost in that transaction. However, you can at least prevent any further issues. As said above, if she gets in an at-fault accident with that car, the wronged party will come after you. This is an… Read more »

Chris
Chris
10 years ago

Yeah, I’d skip S’s advice – we all make silly decisions when in love. Having said that, you should take control of the situation. She is clearly struggling to make payments in a timely manner, but she’s also able to make them. If I were you, I’d ask her to sign an agreement wherein you make the payments to the lender and she pays you. Then you can pay them on time, protect your credit rating, and still have some enforceable agreement with her to protect your money. Of course, if you can’t afford that option, you’re out of luck.… Read more »

Kevin
Kevin
10 years ago

I’m not a lawyer, but I play one on the Internet. Seamus is right, S’s advice would get Patrick in some serious legal trouble. I would highly doubt that Patrick has any legal claim to the car at all. I’m guessing Patrick’s name is not on the title, and the ex-girlfriend is the sole owner of the vehicle, legally. Just because you’re paying for something doesn’t mean you own it, or even have any claim to owning it. Patrick agreed to help pay the loan. That doesn’t give him any right of ownership of the car. It gave him a… Read more »

Kevin
Kevin
10 years ago

People need to stop suggesting that Patrick go and take the car. We do not know if Patrick’s name is on the title. I think it’s safe to assume it’s not. If Patrick were to take a car that does not have his name on the title, that’s called grand theft auto, and it’s a felony. Just because he co-signed the loan does not mean he is automatically included on the vehicle’s title. The loan documents and vehicle title are two completely separate documents. Patrick has no legal claim to the car. Patrick cannot simply take the car. On the… Read more »

CB
CB
10 years ago

You will get a lot of emotional advice from people that have been burned on both sides. If this is the only thing tying you to your ex, I think I would work on a way to finish everything as soon as possible. The easiest way to that is to pay the car off yourself. This may not be a feasible option right now but work toward that end. There will be many that tell you to ‘man up and stick it to her’. Instead, man up and accept responsibility for your part in this. Do your part to see… Read more »

rzrshrp
rzrshrp
10 years ago

@CB

Heh, I’m not sure if the bitterness and unresolved anger part is avoidable whatever route he takes unless the ex makes good on the deal.

“Hey, remember when you left me on the hook for thousands of dollars of your car payments and seriously screwed up my finances? Good times…”

Tony
Tony
10 years ago

As far as I can see, as you are not actually paying out money here, your best course of action is not to do anything. Sure, you will take a hit on your credit rating, but so what? At least you are not having to make the $750 a month payments. As far as I can tell this isn’t your problem, it’s your ex’s. The other thing you could do is try talking to the loan company concerned and see what they say. But, once bitten, twice shy. As Mark Twain said, “a man who tries to carry a cat… Read more »

Seth @ Boy Meets Food
Seth @ Boy Meets Food
10 years ago

I have been on the opposite side of the co-signer coin. After college I was working a job where my income was based on commission. I made decent money, but because it was not consistent (and the short period of time I had worked there), it could not be counted towards calculations for income. I had a good amount in savings, and was ALWAYS on time with all other payments. So, my Mom helped me by co-signing on a house. Fast forward to today, 8 years later, and I would say it has only helped her credit. I make every… Read more »

Chipmunk
Chipmunk
10 years ago

Wow, what a great topic! I’m really looking forward to reading the horror stories here, mainly because I know that I’m going to be able to identify – and deeply sympathize – with a lot of them. In my case it was a close family member (actually, my own mother). I don’t wish to go into the details, but let’s just say that I lost about $9000, and that it wasn’t the first time that she’d ripped off family members, including her own children. Needless to say, we are now estranged from each other. I now regard it as an… Read more »

Kelly
Kelly
10 years ago

I co-signed a loan for a “friend” so she could get a water bed. She promised me she’d make the monthly payment…she did for awhile but then lost her job..I’d make the payments for awhile..then she moved out of state. No payments were made…I was getting calls from the finance company. By now, I was married. We ended up taking her to our local District Justice’s office..basically suing her to make the payment. She finished paying off the bed and repaying me the money she owed me. I did not want the bed because her dog had chewed it beyond… Read more »

Seamus
Seamus
10 years ago

Kevin…

Patrick states…

‘For that time, she’s been driving around in an unregistered vehicle in both of our names.’

I think this is why people are saying for him to go take the car. The assumption is that he is on the title.

Janette
Janette
10 years ago

Are you ready for this? Depending on the state- he could ask for a divorce! My husband did that after his “common law” marriage ended and his “spouse” moved out of state. It was the only way to legally separate their bills. If he is out West- he could check into it. Of course most don’t want to go to that extreme (if I had wanted a divorce I would have married) but in most of the West common law is still on the books. If you have been living together (most for 6 months) and took financial responsibility together-… Read more »

The Beagle
The Beagle
10 years ago

I am Canadian, so this advice may not be directly applicable to the U.S., but under our law I would suggest the following: 1) Pay off the loan yourself, by refinancing it at a lower rate if necessary. 2) Sue the ex on any payments you had to make. Depending on where you live, the outstanding amount may fall within the jurisdiction of the small claims court. You do not need a lawyer for small claims court, and could get a judgment in less than a year. Where I live, the small claims court limit is $25,000. 3) Enforce the… Read more »

Kevin
Kevin
10 years ago

Seamus: I saw that part, but it still wasn’t clear to me that his name is on the title. I read that as Patrick possibly mistakenly believing that since his name is on the loan, then the car is in “both our names.” Clearly, the loan is definitely in “both their names.” But he never explicitely stated that his name is definitely also on the title. Based on his apparent naivete and inexperience (as evidenced by the fact that he enthusiastically co-signed a car loan for a girlfriend), I assumed that he also lacked the savvy and knowledge to ensure… Read more »

Rob
Rob
10 years ago

I am clueless as to what Patrick should do, but I will share my own experiences. First off this is exactly why my wife and I refuse to co-sign on a loan with anyone. We have been asked by two of her sisters within the last two years to co-sign on a house for one and a car for another. In both cases we said “no way, not ever gonna happen.” In the case of the sister that needed a car we decided that we would give her one of ours (it was paid off) and buy a new car… Read more »

treousa
treousa
10 years ago

I’ve for one co-signed my mom’s car loan over 4 years ago. She’s since gone into bankruptcy, but she’s had the decency to have this particular loan excluded (not sure how one can do that, but it worked, the loan was never marked as in bankruptcy proceedings). She didn’t pay on time twice during those 4 years and my credit took a hit (it’s been 3 years now since then, so it’s recovered fully). She’s now in a better financial position, but the whole thing still put us into an uncomfortable position. She’s passed the car on to my next… Read more »

K.
K.
10 years ago

I think we need more info aside from the title issues. How much is left on the loan? If it’s a nominal amount for Patrick, then I agree with those who suggest to pay it off and leave it and her behind. It looks like his ex-GF is in another time zone so the costs of getting an attorney or going out to sue her might be more costly in the long run. This reminds me of recent student loan news stories where a doctor/lawyer has amassed tons of debt and where a parent has co-signed the loan, and thus… Read more »

YD
YD
10 years ago

Hey JD. You should do a story about owning up to and correcting past financial mistakes. Now that you’re making good money, part of the story should involve paying your cousin a reasonable sum for the time you lived with him rent free. Or ‘gift’ him cash or presents of some value as thanks for ‘taking care of you in those difficult, less responsible’ days of yours.

HollyP
HollyP
10 years ago

One of my first jobs was working customer service at a credit card company. Thankfully I learned that Patrick has a great deal of company. That said, after I’d been married approximately 6 months I cosigned a used car loan with my husband. After our divorce at 12 months, I called and hounded him every.single.month about the payment. I didn’t care what he thought, I didn’t want him to ruin my pristine credit. Re: family, I’ve given my 7 & 9 year old children the family loan lecture. The kids chipped in to buy a box of fudge. 7 yo… Read more »

Meg
Meg
10 years ago

Dink (#5), I can see why Patrick doesn’t want the car to be repossessed. Yes, if he pays for everything in cash, he doesn’t really need to worry about his credit score. But what if he’s job hunting and wants a job in the financial sector (or even to be a cashier in a store)? A lot of places will run credit checks on a potential candidate if the job has anything to do with finances (eg, handling money, having access to customer accounts, etc.).

kaitlyn
kaitlyn
10 years ago

Every time I’ve cosigned on a loan, it has been with the assumption that I would pay it if things went wrong. My fiance had to cosign on a loan for me, but I’m finally where I can take him off of the loan, yay!

Elisabeth
Elisabeth
10 years ago

I have been in this situation, and it was a nightmare. Finally I repossessed the vehicle myself (which was a saga in and of itself), got an unsecured line of credit to pay it off (the car loan was upside down), sold the vehicle at a significant loss and finally paid off the unsecured line about 18 months later. Trust me, my shins were black and blue for weeks from the kicking I was giving myself. But I learned my lesson, and I am much more careful with my money, my credit and my name now.

Beth
Beth
10 years ago

I know someone whose father cosigned the loan on her very first car. Part of the deal was that they had an action plan in case something went wrong. For instance, she had to keep money in an emergency fund to cover a job loss, etc. If something happened and she couldn’t make payments, it was agreed in advance that the car would be sold. (Thanks to the good resale value on the car and the downpayment, they’d never be upside down). I don’t think cosigning is evil in itself. I just think it requires more thought than people give… Read more »

Elisabeth
Elisabeth
10 years ago

P.S. In order to repossess the vehicle, your name does need to be on the title, preferably as you OR her not you AND her. Thankfully I retained just enough self-interest to insist on that at the time the vehicle was purchased. If you don’t happen to be in that situation, I’m sorry to say that you don’t have many options other than resigning yourself to making the payments.

JM
JM
10 years ago

Like others, I’m not a lawyer, but I’m not sure that paying the loan and then suing would do any good either. If he pays the loan, he is just doing what he agreed to do when he cosigned. The dealer made her get a cosigner because they thought that she would be unlikely to pay them back. Unless he and she had some other written agreement, she would not have a clear responsibility to pay him back for paying a debt that is equally his to begin with. So, either do nothing and eat the credit score drop, or… Read more »

Kevin M
Kevin M
10 years ago

I don’t really have any advice as the other Kevin summed it up pretty well. I guess the major issue is whether or not you’re on the title. Thanks for sharing your story, really eye opening stuff. Could I request a follow up in a few months?

Melanie
Melanie
10 years ago

Credit checks are actually run for many jobs especially those in public service (i.e. public safety jobs like cops etc.)

Just FYI.

Steve @ MakingAMillionDollars
Steve @ MakingAMillionDollars
10 years ago

I have signed on 2 loans both for my children. One was a student loan. I am now paying the payments on it while she is working on finishing her degree out and really cannot afford to pay on it right now. My other was for a car loan for my son who at the time was making really good money. With the bad economy and that money dropping off he struggles to pay the car loan right now. You have a major responsibility as a co-signer and it impacts your credit. If I had the decision to do over… Read more »

smirktastic
smirktastic
10 years ago

Pay the loan yourself (even if you have to cut your own corners to do so), put it behind you and count on karma to take care of exGF. After it’s paid, take whatever steps are necessary to fully extricate yourself from this car/loan/title, etc.

If you’re applying for a job where your credit is a factor, explain the situation upfront rather than having them find this blemish and then you don’t get the job.

Good luck to you! This all sucks, but soon it will be over.

Scott Wynn
Scott Wynn
10 years ago

I am in a similar situation. My wife and I purchased 2 vehicles together while married. We also had 3 rental properties with mortgages. We then got divorced and the assets (and debts) were split. I got one car and she got the other while the rental properties went to me. We had loans on both vehicles so she took over her payments and I took over mine. Since we divorced I have sold my car and got a new car with a loan that does not include her. She still has her car and the debt that went with… Read more »

smirktastic
smirktastic
10 years ago

A few years ago my husband wanted to co-sign for his parents’ refi (they didn’t ask for this, he wanted to volunteer). I refused, but did it so gracefully that he actually thought it was his idea to not do so. Now that their finances are tight again, I have a feeling this may come up again. I can show him this story and comments on why it’s a BAD IDEA!

Emma
Emma
10 years ago

I must be the lucky one, but I’ve lent money to family and friends and have actually never had a problem, but I’ve never co-signed for a loan for someone. I try not to do something that would affect my own credit because I know how people can be.

Jason Beck
Jason Beck
10 years ago

First the stuff you can’t change: When a bank or car dealer is refusing to give someone an ideal loan because of their credit… what makes YOU think they’re going to actually be creditworthy? The only case I can think of where you might want to cosign is if you know of someone young but with an otherwise proven record of being responsible. Still, I went to college, ran up credit card bills, and got all my own car loans without any problem at a young age. I think my highest car loan rate was 7.49%, and that was back… Read more »

Marsha
Marsha
10 years ago

Aw man…what a painful experience – happens to the best of us! Rest assured when this is all resolved there are many independent girls out there who don’t need cosigners, won’t be desperate to move in and won’t wreck your life.

Ryan
Ryan
10 years ago

Dear Patrick, That’s a horrible story, but a great reminder for us all. Is it possible to follow up with her lender? You are not her bank, she has to be making payments to a financial institution. If she isn’t making payments, let them deal with her. That would take the stress out of having to follow up with her every month. That’s a lender’s job. As a cosigner, I think you have the right to go to her lender and complain. That should start the collections process. Am I wrong here? Someone correct me if so. Truthfully, I’m not… Read more »

Nicole
Nicole
10 years ago

Wow, I do not envy Patrick’s situation. DH’s cousin worked out with his friend a transfer of the title in exchange for taking over the payments after he had cosigned. But… they’d never been dating, and it is a very small town so the friend would have been pretty well shunned if he hadn’t agreed. (Also DH’s cousin is a big scary guy.) So I don’t know how well that will work in Patrick’s case. It sounds like DH’s cousin got away easy! And now he knows never to cosign. He says he’s learning financial lessons very slowly through trial… Read more »

RMS
RMS
10 years ago

One of the best decisions I made was to not co-sign with my brother for a school/personal loan. For a while he didn’t pay on time, and that would have ruined my credit as well as our relationship. Instead, I lent him some cash (not as much as the loan), which he paid back in full (monthly installments) after a few years out of school.

J. A. Streich
J. A. Streich
10 years ago

My comment got eaten. So this might not come out as clearly as the first. I suggest: 1. Arrange buying the car from her, for the amount of the principle she has paid. If you don’t want it, then sell it. If you can’t afford it, sell it, even at a loss, even if it means borrowing the difference. 2. Ask her to sell the car, even at a loss, and even if she has to borrow the difference (don’t cosign if she does). She obviously can’t afford the car, and it’s better to owe a few thousand dollars than… Read more »

ami | 40daystochange
ami | 40daystochange
10 years ago

While I love a good fool-bashing as much as the next gal, I figure Patrick has gotten a good share of it already, so I’ll offer some ideas about the future: 1. Save your own credit score. Call the lender and see what you can work out with them. Maybe you can pay a reduced amount to get off the loan – if you promise to pay cash immediately. Some collectors will take a certain amount of cash over uncertain future payments. It may be worthwhile to get a consumer protection lawyer (get someone who knows his/her stuff!) involved to… Read more »

Scott Haas
Scott Haas
10 years ago

Here two best rules of thumb. 1. Never co-sign on a loan unless you can afford to repay it. You probably will. 2. Never consider a loan to a friend a loan. Consider the loan as an unspoken gift instead. If it is repaid…wonderful. If it is not you have done a good thing for someone who had some troubles and you will still remain friends.

Jill
Jill
10 years ago

I had a very similar situation happen to me back in 2007. I co-signed on the loan for my ex-husband’s car back in 2005, but when we separated in 2007 he stopped paying the payments. During the lengthy legal process of our divorce, I started making the payments (though I really couldn’t afford them) in order to protect my credit. When I could no longer afford that, the creditors allowed me to pay interest only for a couple of months. Then I just stopped paying altogether, as I could no longer afford it and was unbelievably pissed to pay money… Read more »

Kim
Kim
10 years ago

I don’t comment often, but felt compelled to with this one. Here’s the one thing I remember always in regard to loaning money in families: Never consider it a loan; always consider it a gift. (I guess this goes along with the mantra “Never loan more than you can afford to lose.”) If you wouldn’t be willing to give said person the money, then I think you should have strong second thoughts about loaning it or co-signing for it. My advice to Patrick is to pay off the car and call it a lesson learned. OH, and BTW…I lived without… Read more »

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