Co-Signing A Loan Is A Huge NO NO

If a relative, close friend or even your minister asks you to do a little favor and co-sign a loan, the answer is simple.

NO.

Julie, who lives in southeastern Connecticut, learned the hard way this month that when you co-sign a loan you become just as responsible as the person who took out the loan, but you have no control or even knowledge of whether the loan installments are being paid promptly. Just think, there has to be a good reason why a bank or a credit card company is requiring a second signature – it means that the person is a deadbeat.

Three years ago she agreed to her boyfriend’s request to co-sign a car loan for a 2001 Cadillac he wanted to buy.

During the past three years she had been told that all the payments were made and she believed that she still had “a near perfect credit score.”

It was only after she signed a contract to purchase a house that she discovered there was a little problem with the loan.

When the mortgage broker pulled her credit report Julie learned that the car had just been repossessed by Chase Auto Finance, for nonpayment. And since she was a co-signer, she was considered just as responsible as her boyfriend and of course her mortgage application was denied.

“He had all correspondence from Chase Auto Finance go through his phone, his mailing address, and in his name, because it was essentially his car,” she wrote me, asking for my help. “I had no idea that it was going to get repossessed, since he told me that he was taking care of the payments and everything was paid and on time. The problem is that Chase reported the repossession three days before my mortgage broker pulled my credit report. They told my boyfriend they would take two months to report it. In essence, it happened in a span of a few days.”

“I have no one to blame but myself,” she wrote me in a note asking if I could get someone at Chase to work with her because she was willing to pay off the car loan to repair her credit.

I contacted Chase’s public relations department (full disclosure: I own Chase stock) and they immediately went to work with her. They assigned Vinnie, a customer service rep, to help Julie and provided her with his direct line so she could reach him any time she needed to.

By the time Vinnie was on the case, the Caddy had been towed to a Massachusetts auction house, where it will be sold next week. She will then have to pay the difference between the auction price and the amount – more than $6,000 – still owed on the vehicle.

Meanwhile, Julie is still working on her effort to purchase the house. To help rebuild her credit score, she said she has made purchases on open but unused credit cards.

This is not the first, or last, sad story to come up in my four-year career as a consumer columnist.

Two years ago West Hartford attorney Neil Atlas, a friend of mine, asked me to come to the aid of one of his clients who had co-signed an American Express application for her minister. The minister had promised to use it for church functions and vowed that the church would pay the bills.

The client, Audelia Wilson, got a shock when she learned how her signature was used. She received a demand note from American Express wanting $20,000 that the company said her pastor, Bishop Alfred A. Miller, had spent on the card.

Wilson helped start the Hartford church – the True Life Ministry Pentecostal Church – more than 20 years ago and believed her minister would never stiff a woman in her 80s. Wrong. Turns out he used the card for personal expenses.

Atlas – with a little help of publicity – was able to make most of the bill go away, but not before Wilson went through stressful months.

While on the topic of debt, if you find yourself overwhelmed, don’t get suckered by promises from companies promising to reduce your bills by 50 percent or more.

Most of the companies require huge up-front payments (typically $2,800 to $5,400 for $30,000 of debt) and then many don’t do anything for you.

“Desperate consumers are paying these debt settlement services thousands of dollars with no guarantee that even one penny of their debts will ever be settled,” said Susan Grant, director of Consumer Protection at Consumer Federation of America. “These people are the least able to afford being ripped off by paying for help and getting nothing in return.”