Frightening lessons from a well-meaning deal gone painfully wrong
A Mississauga man co-signed a car loan for a friend three years ago, according to CTV. A year after purchase, the vehicle was heavily vandalized by the purchaser’s ex-boyfriend and rendered undrivable. The vehicle has sat, damaged and unrepaired, in a collision centre ever since. And once the owner eventually stopped making payments, that foisted the co-signor of that car loan onto the hook.
With the assistance of CTV’s Pat Foran and APA’s consumer advocate George Iny, we can reconstruct (and deconstruct) some of the machinations — and red flags — surrounding this transaction.
- 2019 Ford Escape: $45,000
- Gap insurance: $2,500 (plus other undefined administration fees)
- Interest: $15,000
- Invoice total: $62,533.
This was during a time of shortages, and used car prices were high; having said that, the MSRP on 2019 Ford Escapes when new was $26,399 to $37,699 (before tax). According to Iny, “in 2021-2022, a 2019 Escape with average mileage would have been listed at 80-90 per cent of the value of a new one.” This aligns with AutoTraders’ price, and recognizes the inflated prices experienced during the pandemic. That $45,000, even including tax, is way out of line.
Before they got to line 2, the OP had accepted a price on a vehicle more than $12,500 over comparable prices that would have been readily available online. Perhaps it was festooned with diamonds. We are, after all, speculating.
Second red flag: The OP did not qualify for the loan to purchase the vehicle. Co-signing loans is a great way to blow up a friendship or destroy familial ties. If an impersonal computer program with a calculator for a heart tells you that you can’t afford a vehicle, don’t take it personally. And don’t buy that vehicle. OP found a friend — now in the news as the deal and the friendship fell apart — who stepped up. That act will have serious repercussions for the friend, their credit rating bank account both taking a beating. That friend has been making $700 monthly payments to keep the loan current on a destroyed vehicle sitting in a collision centre. Unanswered question: who is paying the (always high) fees at that lot?
The APA has seen it all. “Our mystery shopper witnessed a used car dealer and [a buyer’s] boyfriend putting pressure on a woman to cosign a loan for a sports coupe. The couple appeared to be in their early 20s, and it wasn’t pretty. In the end, the girlfriend cosigned… in tears. In that case, the dealer told the male shopper that his employment history didn’t qualify him for the loan, but the girlfriend appeared to have a steady job and enough income.” If this sounds familiar to you, please let this serve as your warning to walk away — and probably from more than the car.
Possible third red flag: was there negative equity rolled into this loan from a previous loan? No way of knowing, but it’s definitely something to avoid. As tempting as it is to throw the seller under the bus here, if there was another outstanding loan rolled into this contract, it’s possible the vehicle wasn’t overpriced. If there wasn’t, well: seller, meet bus wheels.
Fourth red flag: from news reports, the vehicle was vandalized (by someone known to OP) and left undrivable, and this is when the OP stopped making payments. That’s not how car loans work, OP. While it’s concluded that “there were insurance issues”, it’s hard to imagine how insurance wouldn’t cover this unless it had lapsed or the OP voided their insurance or had it cancelled. None of this passes much of a smell test, but it is a huge warning to anyone considering co-signing a loan for someone who has been deemed too risky to secure their own. Your obligation will go on for all the years the loan is in effect. All of them. In this case, likely seven.
APA’s suggestion: Cosign only if you can afford to take the loss on a repossession or are prepared to pay for the vehicle as a gift to the person you are guaranteeing. Lending is supposed to be a science — if a professional believes the buyer is spending so far above their means that a guarantor is required, their assessment should override your longing to come to the rescue of the buyer.
Co-signing loans is an emotional business. My father co-signed for me on my first vehicle — a 1984 Chrysler minivan the year they came out — as I was a recent grad and new to full-time work. We both felt confident I could swing the $248.19 (I’ve never forgotten the amount) monthly payment for two years. While I got a helluva deal on a basic van that had been repossessed by Chrysler at the time, I look back on a two- year car loan and weep.
About the fifth red flag, Iny is blunt: “The illustration to make here is the staggering impact of interest at current rates for the very long auto loans that have become the norm. We could use current ads as an example. You really want to be putting money down and limiting your used-vehicle financing to 60 months or less in the current interest-rate environment. The period from 2008 to 2022 with 0-3% interest-rate financing for up to 84 months for new vehicles from several makes was an aberration.”
Sixth and final red flag: Your boyfriend beats up your car to the point it is undrivable and you walk away from your obligation as if that is an option. In doing so, you knowingly and willingly destroy the financial situation of someone who was friend enough to step up to help, even if the loss of that friendship is now the least of their worries.
You’ve heard good fences make good neighbours? Good friends finance their own car loans.
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