Cosigning Issues in the Current Economy: Testimonial About the Dangers
One of the most popular things that I have written and gets read a ton has been because so many people search online for cosigning on car loans and the potential pitfalls. I want to explain that when I write about issues like these my expertise comes from personal experience. Some of my expertise is really just opinion but on this topic, I have the inside scoop because it has happened to me. Twice.
A few years ago I decided that I wanted to buy a house. A little nest for my golden canary, Little Miss Mota Mouth, and I. Single mom (ex-husband lives a joyful life between France and the Amazon) with no income except what I make on my own, my parents were encouraging me to get something "of my own" rather than rent. The market was low, interest rates low and it was a good idea. So I fell in love online with a house in an area that was up and coming. The object of my obsession was this 1916 Sear's Catalog House in a historic district that was like walking into the farmhouse from Field of Dreams. All sun and light and in the middle of an urban area. If you build it....
So here I was making decent money, owned my car, had no debt (no credit cards)...okay? Can we talk about credit scores? Guess what- It isn't like the major credit reporting agencies think about Life Optimistic like I do which is everyone gets to start with 100 points and any lowering of the score is because they have done something wrong! They actually score you on what you owe! Start with zero and the more you owe the better your score is with some weird algorithms thrown in just to keep you confused. Weird. My broker tells me that my score is *okay* but "Hey! If you have a friend or family member that will cosign, you will get a better rate!". Hrm. Family is out of state which means that they will not qualify me for a good rate because out of state financing means "vacation home" and that is a higher rate. Broker says, "Don't you have a boyfriend?". Well yeh and not that he was at marriage level yet but he has better credit than me (read: more debt) so I put him on the loan. I pay a significant down payment and closing costs and he contributes nothing. Woo hoo- great rate so everyone lives happily ever after, right?
NO.
So boyfriend doesn't last which is okay but a few months after he isn't around he calls and tells me that I have to sell the house (which has now doubled in value) because he is on the title so drats. Legal hell. I feel like I bought a green card because I have to pay this loser to get off title. (I am skipping over years of legal bills here because I am still in denial) but more about that cosign hell in a second.
Meanwhile my best friend needs a car. A car. I help him shop and after taking him by a dealership I used to work with we find his car. He doesn't have any credit history because he is a musician but has a gotten a great job so when the sales guy says, "If you will cosign for him he will get a better deal". Now who wouldn't try to help their best friend? So I cosign. Sweet 2005 Mustang in yellow. He was one happy guy! They TOLD us that this would help him build credit.
Now after of the *helping a friend get a car* mode, my legal battles start getting resolved but the conditions are that I have to refinance my house alone which all lawyers and brokers agree shouldn't be a problem. But it was.
Turns out that even though I owned my cars (2 at this point) and had no debt and was making a good income, those crazy reporting agencies saw my debt to income ratio as being too high because actually the cosigned car that my friend is paying for and insuring is reporting as me being the primary on the loan! So getting a refi on the house was nearly impossible. Especially in the current lending market- getting a loan is hard.
What I learned is this: The real estate broker was no different than the car dealership. When they tell you that you will get a better rate it is because *they* will get a better rate and can mark up the points to you which makes them more money. They essentially get quotes that they then mark up- put more interest on- and that is how they all make money. That real estate broker was making a living and some would call it greedy. I didn't understand to know differently and with the car I didn't understand how they worked either.
Moral of the story is do not cosign because you will never know when you will need access to your own credit. I am lucky that my friend would never bilk on his payments on that car but if he did, my life would be difficult. Many a story has come past my desk of cosigning nightmares where friends and family have renegged on paying on co-signed cars.
Knowing that this has caused me hardship, my friend has volunteered to give me back the car so I can sell it but unlike these sales people, I made a commitment to my friend and would never try to screw anyone.
Stumble It!
A few years ago I decided that I wanted to buy a house. A little nest for my golden canary, Little Miss Mota Mouth, and I. Single mom (ex-husband lives a joyful life between France and the Amazon) with no income except what I make on my own, my parents were encouraging me to get something "of my own" rather than rent. The market was low, interest rates low and it was a good idea. So I fell in love online with a house in an area that was up and coming. The object of my obsession was this 1916 Sear's Catalog House in a historic district that was like walking into the farmhouse from Field of Dreams. All sun and light and in the middle of an urban area. If you build it....
So here I was making decent money, owned my car, had no debt (no credit cards)...okay? Can we talk about credit scores? Guess what- It isn't like the major credit reporting agencies think about Life Optimistic like I do which is everyone gets to start with 100 points and any lowering of the score is because they have done something wrong! They actually score you on what you owe! Start with zero and the more you owe the better your score is with some weird algorithms thrown in just to keep you confused. Weird. My broker tells me that my score is *okay* but "Hey! If you have a friend or family member that will cosign, you will get a better rate!". Hrm. Family is out of state which means that they will not qualify me for a good rate because out of state financing means "vacation home" and that is a higher rate. Broker says, "Don't you have a boyfriend?". Well yeh and not that he was at marriage level yet but he has better credit than me (read: more debt) so I put him on the loan. I pay a significant down payment and closing costs and he contributes nothing. Woo hoo- great rate so everyone lives happily ever after, right?
NO.
So boyfriend doesn't last which is okay but a few months after he isn't around he calls and tells me that I have to sell the house (which has now doubled in value) because he is on the title so drats. Legal hell. I feel like I bought a green card because I have to pay this loser to get off title. (I am skipping over years of legal bills here because I am still in denial) but more about that cosign hell in a second.
Meanwhile my best friend needs a car. A car. I help him shop and after taking him by a dealership I used to work with we find his car. He doesn't have any credit history because he is a musician but has a gotten a great job so when the sales guy says, "If you will cosign for him he will get a better deal". Now who wouldn't try to help their best friend? So I cosign. Sweet 2005 Mustang in yellow. He was one happy guy! They TOLD us that this would help him build credit.
Now after of the *helping a friend get a car* mode, my legal battles start getting resolved but the conditions are that I have to refinance my house alone which all lawyers and brokers agree shouldn't be a problem. But it was.
Turns out that even though I owned my cars (2 at this point) and had no debt and was making a good income, those crazy reporting agencies saw my debt to income ratio as being too high because actually the cosigned car that my friend is paying for and insuring is reporting as me being the primary on the loan! So getting a refi on the house was nearly impossible. Especially in the current lending market- getting a loan is hard.
What I learned is this: The real estate broker was no different than the car dealership. When they tell you that you will get a better rate it is because *they* will get a better rate and can mark up the points to you which makes them more money. They essentially get quotes that they then mark up- put more interest on- and that is how they all make money. That real estate broker was making a living and some would call it greedy. I didn't understand to know differently and with the car I didn't understand how they worked either.
Moral of the story is do not cosign because you will never know when you will need access to your own credit. I am lucky that my friend would never bilk on his payments on that car but if he did, my life would be difficult. Many a story has come past my desk of cosigning nightmares where friends and family have renegged on paying on co-signed cars.
Knowing that this has caused me hardship, my friend has volunteered to give me back the car so I can sell it but unlike these sales people, I made a commitment to my friend and would never try to screw anyone.
Labels: Buying Cars, cosign, Credit
Stumble It!
posted by Miss Mota Mouth@ 9:12 PM 1 Comments
1 Comments:
Brilliant.
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