When Co-Signing for a Car Goes Bad -- Lucy's Story

By Louis DeNicola, Content Writer at Credit Karma

I recently sat down with a friend, Lucy*, to discuss her experience co-signing for a car lease. What began as a favor to her boyfriend ended up costing her thousands of dollars and a serious knock to her previously excellent credit score.

The whole situation is something she'd rather forget, but she hopes others can learn from her co-signing experience.

Where it all started: A trip to the car dealership.

In November 2011, Lucy's then boyfriend, Dan* wanted to lease a 2011 Prius. He'd already picked the color and model and was heading to the dealership with $3,000 he'd saved for a down payment. Lucy decided to go with him.

At the dealership, Dan sat down with the salesperson to work out the details. The salesperson took his information and headed to the back room, but came back with discouraging news: He couldn't get Dan approved unless Dan came up with more money for the down payment. Feeling sorry for Dan, Lucy asked the salesperson to check her credit - maybe she could co-sign the lease?

At this stage, Lucy had already paid off her student loans and had an excellent credit score of about 780. The salesperson ran her information and said that he could go forward with the lease if Lucy signed. She talked it over with Dan, and they agreed that her signing was just a formality -- in practice, he would make all the payments, and the car would be his.

Lucy says it was only when a large pile of paperwork was placed in front of her, and she started to read the documents, that she realized she would actually be the primary on the lease. Dan would be the co-signer.

"It seemed weird," Lucy says, "but I had already agreed, and I felt like it was too late to back out."

Dan stops making payments.

Lucy and Dan moved in together and everything was okay for a time. The car payments were about $500 a month; Lucy would get the bill, but Dan would pay it.

Then Dan decided to quit his job. He didn't have savings and wasn't seriously looking for a new job.

Lucy was stuck in more ways than one. She was working at a coffee shop in San Francisco and had some savings, but not enough to cover everything. Now she had to figure out a way to pay both portions of the rent and was worried that missed or late car payments would reflect badly on her credit.

"I asked my parents to lend me money to help with rent, but I didn't feel right asking for help with the car," Lucy says. She paid the car payments and as much rent as she could and used credit cards to cover day-to-day expenses.

In October 2013, they broke up and moved out of their shared apartment. Dan agreed to start paying for the car again. However, Lucy would still get the invoices in the mail and noticed that sometimes the amount due had doubled. It was clear to her that Dan wasn't making all the payments.

In the end, Lucy paid made about five months' worth of payments - around $2,500 in total.

The aftermath.

Even now, Lucy is still dealing with the aftermath of the entire situation. She's still repaying credit card debt she incurred trying to juggle rent, living expenses and the lease payments. She'll occasionally get mail regarding the car - notices from an oil change shop or a mailer from the dealer about a great new offer - even though Dan bought the car outright when the lease ended in November, 2014.

He sometimes offers to pay her back, but Lucy feels like this is more of an attempt to get her to spend time with him. At this point, she'd rather not speak with him at all.

When Lucy checked her credit in July 2014, her score had dropped from the original 780 to 620. She discovered there was an account in collections on her credit report and thinks it may be related to a parking ticket that Dan didn't pay while she was still the Prius' primary lease-holder.

Lessons learned.

Because of her credit card debt, Lucy rarely uses her card today. She says she'll think more than twice before co-signing a lease or another auto loan.

Keep her story in mind the next time someone asks you to co-sign a loan or lease.

If that happens, you probably won't want to co-sign unless you can afford to cover the payments. If the other co-signer stops paying his or her share, you'll be responsible for making the payments - and if you default on the loan or lease, you're likely to see a hit to your credit.

Dan and Lucy split for other reasons, but you should also consider the potential personal ramifications before agreeing to co-sign. If things don't turn out as planned, relationships with friends, family members or significant others could be strained -- or even end.

*Names have been changed to maintain privacy.

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About the Author:Louis DeNicola is a personal finance writer and educator. In addition to being a contributing writer at Credit Karma, you can find his work on MSN Money, Cheapism, Business Insider and Daily Finance. When he's not revising his budget spreadsheet or looking for the latest and greatest rewards credit card, you might spot Louis at the rock climbing gym in Oakland, California.