How to protect yourself when co-signing a car loan Part Of Financing a Car With a Co-Signer In this series Financing a Car With a Co-Signer Advertiser Disclosure Advertiser Disclosure We are an independent, advertising-supported comparison service. Our goal is to help you make better financial choices by offering you interactive tools and financial calculators, publishing original and objective content, by enabling you to conduct research and compare data at no cost and help you make sound financial decisions. Bankrate has agreements with issuers, including but not limited to American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Make money The products that appear on this site are from companies who pay us. This compensation can affect the way and when products are listed on this website, for example for instance, the order in which they be listed within the categories of listing and other categories, unless prohibited by law. This applies to our loans, mortgages,, and other products for home loans. However, this compensation will have no impact on the content we publish or the reviews that you read on this site. We do not contain the entire universe of businesses or financial offers that may be open to you. Oliver Rossi/Getty Images
2 min read published on October 12, 2022.
Writer: Rebecca Betterton Written by Auto Loans Reporter Rebecca Betterton is the auto loans reporter for Bankrate. She specializes in helping readers to navigate the ins and outs of securely taking out loans to purchase a car. Written by Rhys Subitch Edited by Auto loans editor Rhys has been writing and editing for Bankrate since late 2021. They are dedicated to helping their readers gain the confidence to take control of their finances by providing clear, well-researched information that is broken down into complicated topics into bite-sized pieces. The Bankrate promise
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Therefore, this compensation may influence the manner, place and when products appear in listing categories, except where prohibited by law for our mortgage, home equity and other home lending products. Other elements, like our own rules for our website and whether or not a product is offered in your area or at your own personal credit score could also affect the way and place products are listed on this website. We strive to provide a wide range offers, Bankrate does not include specific information on every credit or financial product or service. Signing off as a is a way to make it possible to own a car for a relative or friend member who may not qualify for financing without your assistance. But co-signing comes with risks, as you share equal legal responsibility for the loan late payments, or default will impact your financial situation. But if the vehicle owner is accountable, co-signing may actually improve your credit. 5 ways to protect yourself as a cosigner these points to protect your financial security should you choose to become co-signer for a future . 1. Use co-signers only for close friends and relatives The main risk that comes with co-signing as co-signer for a loan co-signer is potential damage to your credit score. Ideally, you should only aid a family member or friend member whom you trust- someone with a consistent income who is financially stable. It is essential to ensure that the principal borrower will be able to pay but just didn't qualify because of their insufficient financial history or age. 2. Check that your name appears on the vehicle title Co-signers do not hold ownership for the automobile. This means that the way you are named in the loan agreement is crucial. If you're not named to the title of the vehicle, you might not be able to claim legal rights to the vehicle, but you could be responsible for potential payments. Confirm that the title states that you are the primary owner as well as yourself. So, the car can't be transferred without two with their signatures. 3. You should draft a contract. While you'll both sign off on the loan itself, having a separate contract stating your expectations regarding the principal borrower could be an additional layer of security and serve as a reminder of the agreement's seriousness. The contract does not have to be too complicated. Just a promissory note outlining the cost, obligations, and what default will mean to both sides. Once you have both agreed take the document to a notary in order to get it signed. 4. Make sure you track monthly payments. One method to increase confidence in the primary borrower's ability in making payments is to track the payment schedule for each month. It could be as easy as setting a calendar reminder to monitor their spending. Although this may be uncomfortable, remember that your credit is at risk. Simply reach out and open an exchange to inquire about the family member or friend without having to manage the loan. 5. Ensure you can afford payments If all else fails, you need to know that you can cover the costs of the loan. If you're not able to pay back the lender, your credit score is in danger as you may risk default and other legal actions. The principal borrower is responsible for the most responsibility however you're in the middle of the loan as a co-signer. Co-signing an auto loan can affect your credit dangers of co-signing a vehicle loan aren't difficult but could be severe. If the person you sign for isn't able to pay, your credit could take a big hit and you'll be on the responsibility of paying for the loan. However, there are other potential benefits to your credit score Credit mix: Based on your current open credit accounts, adding an auto loan in your credit score could potentially enhance what's called"your credit mixture. The credit mix comprises 10 percent part of your FICO credit score. History of payments: Just as your score could decrease in the event that the primary borrower does not make timely payments, it's possible to benefit -- though on a much smaller scale -- from them making consistent on-time payments. The bottom line : Being a co-signer is a big financial decision and could result in financial or interpersonal problems. For many, it can make the difference between having a vehicle or not. If you choose to co-sign the loan ensure you are protected and make certain you are able to pay for the loan in the event that the principal borrower defaults. Learn more
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This article is written by Auto Loans Reporter Rebecca Betterton is the auto loans reporter for Bankrate. She is a specialist in helping readers to navigate the ways and pitfalls of borrowing money to purchase a car. Written by Rhys Subitch Edited by Auto loans editor Rhys has been writing and editing for Bankrate from late 2021. They are dedicated to helping readers gain the confidence to manage their finances through providing precise, well-researched and well-sourced information that breaks down complex subjects into bite-sized pieces.
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