You Co-Signed a Loan and you regret it? Now you’re wondering what you should do. I got you!

You Co-Signed a Loan and you regret it? Now you’re wondering what you should do. I got you!

There’s always a story, and it usually goes like this:

“I’m trying to get this car/apartment, but I need a co-signer. I have the money, but the dealership/leasing office says I can’t get it without a co-signer, or I’ll get a way better rate with a co-signer. Can you please help me, my credit is almost where it supposed to be?”

Since you are a great friend/partner/human being, you decided to sign your name to the bottom line, against your better judgment!

Do you know what it ACTUALLY means to co-sign on a loan?

• You are agreeing to make payments on something (car, apartment, mortgage, etc.) that you are not even benefiting from. When signing your name, you are agreeing to the terms of the loan, and to make payments if the person decides to do so no longer.

• It is as if you took out your own loan.

• The account goes on your credit report.

• The payments or non-payments are reported monthly just like your other accounts.

• It gets calculated in your debt-to-income ratio, because it is YOUR debt (in case you try to apply for a mortgage, auto, credit card, etc..)

• If the person chooses to file for bankruptcy, you are also on the hook for that.

My opinion? Co-signing is a horrible idea, but we sometimes feel the need to help a friend/partner/loved one.

What happens when you no longer want your name on a loan you already co-signed?

• Ask the person to refinance the loan on their own

By refinancing the loan, the old account will be closed, the other person will have it in their name, and you’ll no longer be responsible for that account. Keep in mind, that would work if the person has improved their credit and is able to qualify to refinance. (BEST/EASIEST CASE SCENERIO)

• Pay off the loan or sell the item/asset/liability

If you have the funds, pay off the loan or sell the item (have something in writing, notarized, and signed by both parties to be on a safe side). Also, make sure if you decide to sell it, it is enough to cover the ENTIRE loan, otherwise, you will be left with a balance that will need to be paid. I know this option is a bit drastic, it will not remove your name from the loan, but you will no longer have to make monthly payments, and it will not be counted against you (debt-to-income). Again, being a co-signer means it is also YOUR loan.

• Ask for a co-signer release

Contact the lender to see if they offer co-signer release. Some lenders give the option to remove a cosigner’s name from a loan if:

• a) The other borrower has made enough timely payments (they have a certain number they accept as “enough”) on the account.

• b) Prove that they can actually afford the payments on the account.

If the lender allows that, but the other person has not made the “required” number of payments, talk to them to ensure they make the necessary timely payments, then start the process.

• Do a balance transfer (joint credit cards)

Apply for a low or no APR balance transfer credit card. Once you complete the transfer, close the account, and make sure to call the creditor to add a note stating that the account SHOULD NOT BE RE-OPENED!

If you find yourself stuck with the loan, at least make the timely monthly payments so it won’t negatively affect your credit.

Now that you know the cons of co-signing a loan and how tricky it is to get out of it, you should not take it lightly and you should think twice or ten times before agreeing to do so!