I did a stupid thing about two years ago. One of my best friends was going through a life crisis and she needed help purchasing a car. (Her own credit score was bad because an old car dealership screwed her over.) So, she asked me to co-sign on her new car purchase. I don't know how I could be so stupid as to agree to it back then, but I did, thinking I was helping out a friend who was in dire need.
Long story short, she was late three times on her payments and of course my credit score has been affected. I've had to pay for her twice so that my credit score would be protected. She has her life back together now and she hasn't been late in a while but it's still something always on my mind.
Would it be better for her to continue to keep the car and make timely payments to improve my credit score? Or should I ask her to sell the car?
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A: It's terrible when good intentions turn into regret, and even worse when a friend takes advantage of your willingness to go above and beyond. Co-signing may seem like a benevolent thing to do when you're helping a friend in need, but you've seen what can happen when the person making the payments isn't reliable. Your credit score is affected, and as a co-signer there's nothing you can do on your own to get out of the mess.
As a co-signer you guarantee the loan but your name isn't on the car's title, and you agreed to make the payments if your friend flaked. The creditor wanted a co-signer so that they would have a more credit-worthy borrower, and when your friend missed three payments she proved to you and the lender that she's indeed a risky person to grant a loan. The loan stands whether or not the car is in your friend's driveway or back on a lot for sale somewhere.
You can't be removed from the loan unless your friend refinances the loan by herself, but she'll find that rates will be sky high with her poor credit history. She may be able to extend the amount of time on her refinanced loan to lower her monthly payments. This should be the first step in getting the loan wrapped up and have her do it as soon as possible — the last thing you want is a car repossession in your credit history.
The other option would be for her to sell the car, use the money to pay off the current loan, then your friend can figure her transportation out on her own. For peace of mind and the sake of your credit score, get out of this situation as soon as possible.