WASHINGTON — It’s tough to establish yourself financially, so I understand when people seek help from others. Sometimes the appeal is for someone to co-sign a loan. My rule: Don’t do it. Ever.
Here’s a cautionary tale from a reader who gave in to a friend who begged her to back some medical-school loans.
“At the time, she promised to switch the co-sign to her father after a year,” the reader wrote. “He was unemployed and couldn’t co-sign. Well, I’m still on the loans, and there’s still a huge balance on them. I still get alerts when the payments are late. And I learned my near-perfect credit had a blemish on it when I bought a house. When I ask her about taking me off, she says she’s really sorry but the loan agency won’t let her. Is this true? Is there anything I can do to untie myself from her loans?”
I recommended he contact the lender to see if there is a co-signer release policy and, if so, what the requirements are. There are usually a number of conditions that must be met, including that the primary borrower has made a certain number of on-time principal and interest payments. In this case, the primary borrower is frequently paying late. So why would a lender release the co-signer given the loan history?
Finally, a Maryland woman shared a story about her uncle, who co-signed for a neighbor so she could purchase a car.
“He knew her and had loaned her money before, which she always repaid,” the niece wrote. “But she often took long periods of time to repay. ”
Things were OK for a while.
“But she didn’t pay the insurance,” the niece wrote. “Next thing he knew, my uncle was getting notices from the state Motor Vehicle Administration⅜because the tags were revoked due to the lapse in insurance. Unknown to him (only because he didn’t read the contract when he signed it), the car was in his name with her as a co-owner. When he contacted the dealership, they told him his credit was better than hers and so they had put not only the credit, but the car, in his name with her as co-owner.”
The MVA came after them both in court for more than $1,000 in fines. He ended up paying all of the fines.
Again, consider yourself warned. If the bank, which has more money than you, isn’t comfortable with lending someone money, that’s a huge red flag that your co-signing might result in misery.
Write to Michelle Singletary c/o The Washington Post, 1301 K St., N.W., Washington, D.C. 20071 or email address email@example.com.