Concerning rise in co-signers for US auto loans

There is a concerning rise in co-signers on auto loans in the US; a recent survey revealed that of the 2,000 co-signers, over half helped someone obtain a car loan, more than twice as many as had helped with a personal loan, according to CreditCards.com. The fear is that, as we recently noted, auto loans topped $1tn for the first time for Q1 2016 with increases in both the share of subprime borrowers and loans that are 30-60 days delinquent; co-signing could put someone on the hook for the entire amount outstanding if the primary borrower cannot, or won't, pay up. In fact, the Federal Trade Commission has warned that in some US states creditors can even try and extract the money owing from the co-signer first. Of the co-signers in the CreditCards.com survey, nearly 40% ended up having to pay for at least part of the bill, while 28% of them saw a drop in their credit score due to the primary borrower's bad credit habits. 

Has a friend or relative asked you to co-sign on a loan recently, essentially linking your good credit to theirs to get financing? If they have, chances are it's been for an auto loan, a new survey has found.

Among co-signers in a CreditCards.com survey of more than 2,000 participants, half have helped someone obtain a car loan — more than twice as many as had helped with a personal loan. Nineteen percent had co-signed on a student loan and 16 percent, a credit card.

Yet co-signing on an auto loan may be a bad idea. Auto loans topped $1 trillion for the first time ever during the first quarter, according to credit-reporting company Experian, with increases in both the share of subprime borrowers and loans that are 30 days and 60 days delinquent.

"Auto is clearly a little stretched, in my opinion," Jamie Dimon, JPMorganChas e's chief, said last week. "Someone is going to get hurt. ... We don't do much of that."



Co-signing any debt is a dicey proposition, said Bruce McClary, a spokesman for the National Foundation for Credit Counseling. It ties you to that debt for the life of the loan, meaning you could be on the hook for the entire amount outstanding if the primary borrower can't — or won't — pay up. (The Federal Trade Commission warns that in some states, creditors can even try to extract the money from you first.)

"A lot of people enter into these situations wearing rose-colored glasses," said McClary. "They're not seeing reality where it is and the potential for things to go wrong."

Among the co-signers in the survey, nearly 40 percent found themselves on the hook for at least part of the bill the primary borrower didn't pay, while 28 percent saw a drop in their credit score from that borrower's bad credit habits.