Reuters

(Reuters)

Risky Business: Co-Signing a Friend's Car

By Features Bankrate.com

Dear Driving for Dollars,

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I have bad credit, and a dealer suggested I get a friend to help me buy a car by having them sign the contract to get a good interest rate. The dealer told me that my friend would have no involvement afterward. I've been doing some research about whether I can do this and what the risks are for me and my friend, but it's still not clear to me. Is this really a good idea?

-- Brian

Dear Brian,

You ask a good question, but your details bring up a few possible issues. In most cases, when a friend or family member steps in to help someone with bad credit buy a car, they are co-signing on the car loan. If both of you are on the loan, both of you are responsible for payments. You and your friend's credit will be affected whether either of you make those payments on time.

For you, if you make timely payments, it will help your credit. If you get behind on the car loan, your friend's credit will be affected negatively and your friend will be held responsible should you stop making payments. Your friend's credit score will most likely go down, particularly if you are regularly late.

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What concerns me a bit about your question is your comment that the dealer says your friend will have no involvement after the contract signing. This may be a straw purchase -- where something is knowingly purchased for someone else because that person can't purchase it. There is a law against this, most frequently related to buying a handgun. If this is the case with your car purchase, you need to make sure that your lender is fully informed and does not view it as a straw purchase and that the car will be in your name. It may be that the dealer is trying to make a sale using tactics that are less than aboveboard and possibly illegal.

What do you think?

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