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4 min read Published September 30, 2022
Dan Miller Written Dan Miller Written by Points and Miles Expert Contributor Dan Miller is a former contributor to Bankrate. Dan wrote about loans, home equity, and debt management in his writing. Written by Rashawn Mitchner. Edited and written by Associate loans editor Rashawn Mitchner who was an editor in charge at Bankrate. The Bankrate promise
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We are compensated for the placement of sponsored products and services or by you clicking on certain hyperlinks on our website. So, this compensation can affect the way, location and in what order items are displayed within the categories of listing, except where prohibited by law. This is the case for our mortgage or home equity products, as well as other home lending products. Other factors, like our own website rules and whether a product is available in your area or at your own personal credit score could also affect how and where products appear on this website. Although we try to offer the most diverse selection of products, Bankrate does not include the details of every financial or credit product or service. Co-signing an auto loan for a friend or loved one is a serious financial choice. It means you are legally accountable for the loan payments if the person whom you’re cosigning for does not make the payments. In addition to putting your cash on the line when cosigning an auto loan, you’re also risking your credit. If the loan ends up in default or the car is ultimately repossessed the credit of your client will be damaged, even if you have long-standing track record of paying all your bills in time. How auto repossession works When you sign a lease or borrow money for a car, you don’t actually own the car. The lender retains the title of the vehicle until you fulfill the obligations you have made and repay the loan. In the paperwork that you signed when you drove away in the vehicle, you granted the lender permission to repossess your car if you stop making payments. The lender will typically only take possession of cars as a last resort in the event that you have stopped making payments and they think there’s little to no chance you’ll resume payments. The majority of lenders prefer to receive payments rather than going through the hassle of bringing the vehicle back. If you do find that a lender decides to repossess your car, it’s generally not required to issue any kind of notice. The lender may send a driver to take the car away or hire a tow truck. If your vehicle is equipped with remote start, the lender might also block your ability to start the car. While laws vary by state however, a lender is typically permitted to enter private property to repossess the vehicle. But, it’s prohibited to break into the garage or damage the property. What happens when a co-signer is unable to take possession of the car? It’s crucial to understand that attempting to fix a default on an loan yourself, or “taking matters to yourself,” isn’t considered to be a acceptable alternative to legal action in all states. The courts have this rule to avoid the kind of physical conflict that could occur in the event that you try to seize your friend’s vehicle, so let the dealer or the bank repossess it. How the credit of co-signers will be affected by repossession co-signing is legally responsible for the loan. When you co-signed the loan, you promised the lender that you would ensure that the payments were completed even if the primary borrower failed to pay the payments. So, late payments or repossession will be reported on your credit report too. If you are the co-signer for the car, you are responsible for this debt until it is completely paid. Your credit score, available cash and the relationship you have with your co-signer who is in default are in danger. If the situation is not good, all three of those factors could be affected. There are several reasons why you should be extremely cautious when agreeing to be a co-signer. About who and what you are co-signing to. It’s a good idea to only sign for those who are close to you or family members you are confident. In the ideal scenario, they are financially stable. To help protect yourself in these situations, you could be thinking about creating an independent contract between you and the principal borrower. This document will outline your expectations and the respective obligations. Once this document is executed by both parties, get it notarized. Rights as a cosigner a co-signer, you are legally responsible for the debt, however, it is not legally binding on you . You do not have a legal right to own the car or other property. If the borrower who is the primary one falls in arrears with their car payments and you think you are entitled to repossess the car yourself however, you don’t. Another option to ensure your safety when co-signing for a loan is to keep one payment ahead. Contact the lender and find out what amount is due (if there is any) and pay it and then make one additional payment. Then, even if your co-signer pays late again any late payments can still be counted toward the balance, without affecting your credit score. It is just a matter of staying contact to the lender and make sure you are at least one month behind. The other option is to request to be taken off of the loan. The borrower who is the primary one must accept the release of cosigners, and it is the lender will only grant approval in the event that the primary borrower can prove that they are able to repay the loan on their own. Credit repair after repossession a repossession on your credit file will make your credit score decrease and can have a negative impact on the ability to qualify for other kinds of loans. The repossession period is seven years long are a thing of the past, so it is important to make every effort to make sure that the vehicle you signed for isn’t repossessed. Depending on your relationship with the primary borrower, you might be able to work out a deal. You could ask that they hand over ownership of the car while you make the remaining payments. Once the car is fully paid, you could trade it in and get some of the money. You might try to sue the primary borrower to seek compensation for damages however if they fail to make payments due the lender in full, it’s likely that they won’t pay. Even if you win a judgment against them, you’d need to know how to make it effective. It’s better not to let it get to that point. The bottom line: Co-signing a loan is an incredibly risky thing to do and puts your credit in danger. If you are considering co-signing for the auto loan or other type of loan, consider what you will do if the borrower who is your primary lender defaults. Instead of co-signing, you might look into working with them find alternatives that don’t require a co-signer. If you’ve co-signed an loan and the principal borrower is in arrears with payments There are several alternatives. It’s most important to understand that you do not have the right to repossess the vehicle on your own. Instead, you’ll need to work out a solution with the primary borrower or continue to make payments towards the lender. Find out more about:
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Authored by Points and Miles Expert Contributor Dan Miller is a former contributing writer for Bankrate. Dan covered loans, home equity , and debt management in his writing. The edit was done by Rashawn Mitchner. Edited by Associate loans Editor Rashawn Mitchner, who was formerly an associate editor at Bankrate.
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