I will try to cover the best way to approach a loan with a co-signer for those who may find themselves in a situation where a co-signer would make the loan more advantageous for a consumer.
I will not respond to individual situations regarding co-signers within this thread. But rather this tread is designed to give a comprehensive overview regarding co-signers. Questions/comments of the overall strategy are welcome.
Below is the quoted text from a Co-Signer form:
NOTICE TO C0-SIGNER
You are being asked to guarantee this debt. Think carefully before you do. If the borrower doesn't pay the debt, you will have to. Be sure you can afford to pay if you have to, and that you want to accept this responsibility.
You may have to pay up to the full amount of the debt if the borrower does not pay. You may also have to pay late fees or collections costs, which increase this amount.
The creditor can collect this debt from you without first trying to collect from the borrower. The creditor can use the same collection methods against you that can be used against the borrower, such as suing you, garnishing your wages, etc. If this debt is ever in default, that fact may become a part of YOUR credit record.
This notice is not the contract that makes you liable for the debt.
I have received a copy of this notice.
Most consumers believe that a co-maker will help someone with limited or no credit or even bad credit obtain a loan. That in most cases may be in fact true, but the way it is approached may significantly vary the loan results.
Probably the most common cases are where a parent wishes to co-make a loan for a child to help them establish some credit and the second most common case is where someone with good credit wishes to help someone with damaged credit to re-establish their creditworthiness.
In these cases the actual driver/owner of the car almost always insists on being the BUYER and having the person with the better credit be the CO-BUYER. Usually this is a feasible arrangement in most cases. But what most consumers do not understand that the banks/lenders will rate/approve the loan based on the first person's credit score.
Thus if you have a young person with NO score and a parent co-maker with a 740+ score the loan would be written at a minimum of C tier rates. Conversely, if the application were reversed with the parent as the Buyer with the 740+ score and the child with NO score as the second applicant, the resulting approval would likely be a SIGNIFICANTLY lower APR.
From my conversations with consumers over the years, I have come to understand that most consumers mistakenly believe the first applicant on the loan gets the credit so to speak. So they insist on a financial arrangement that ultimately costs more money over time.
Most lenders/banks will report a co-signed loan with a J status on your credit file. Subsequently if one were to peek at your credit file, no one would know from looking at your credit file if you were either the Buyer or the Co-Buyer. There are some isolated instances I have seen over the years where the Buyer is reported with an S status and the Co-Buyer is reported with a C status, and in those cases, it is easy to determine who signed first and second place on the loan.
I hope this helps creditboard members who have questions overall about co-signers.
Your comments and questions are welcome, but please keep them generic in nature.
Edited by MarvBear, 07 February 2009 - 07:58 PM.