What happens to a cosigner in the event of a vehicle being repossessed? Advertiser Disclosure Advertiser Disclosure We are an independent, advertising-supported comparison service. Our goal is to help you make better financial choices by providing you with interactive tools and financial calculators as well as publishing relevant and impartial content. We also allow users to conduct studies and compare information for free and help you make informed financial decisions. Bankrate has agreements with issuers such as, but not limited to, American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Earn money The products that appear on this website are provided by companies that pay us. This compensation may impact how and when products are featured on the site, such as for instance, the order in which they appear in the listing categories, except where prohibited by law. Our loan products, such as mortgages and home equity and other home loan products. But this compensation does not influence the information we provide, or the reviews that you see on this site. We do not include the universe of companies or financial offerings that might be accessible to you. SHARE: prostooleh/Getty Images
4 min read. Published September 30 2022
Authored by Dan Miller Written by Points and Miles Expert Contributor Dan Miller is a former contributor to Bankrate. Dan wrote about loans as well as home equity, and managing debts in his writing. Edited by Rashawn Mitchner. Edited by the associate loans editor Rashawn Mitchner, who was a former editor in charge at Bankrate. The Bankrate guarantee
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We receive compensation for the placement of sponsored products and, services, or through you clicking certain links posted on our site. So, this compensation can influence the manner, place and in what order items are listed, except where prohibited by law. We also offer mortgage home equity, mortgage and other home loan products. Other factors, such as our own rules for our website and whether or not a product is offered in your region or within your self-selected credit score range can also impact the manner in which products appear on this site. Although we try to offer the most diverse selection of products, Bankrate does not include the details of each credit or financial item or product. Co-signing an auto loan for the benefit of a loved one or friend is a major financial decision. It implies that you’re legally responsible for loan payments if the individual whom you’re cosigning for does not make the payments. Along with placing your cash on the line when cosigning an auto loan as well, you’re also putting at risk your credit. If the loan is in default or your car is ultimately repossessed the credit of your client will be damaged–even if you have a long history of paying all of your bills in time. What happens when you have auto repossession When the lease is signed or purchase an automobile, you don’t actually own the vehicle. The lender keeps the title for the car until you have fulfilled your obligations and pay off the loan. In the paperwork that you signed when you drove away with the vehicle, you granted the lender an option to take possession of your car if you stop paying the loan. The lender will typically only take possession of a car as a last resort if you’ve stopped paying and they think there’s little to no chance you’ll be able to resume your payments. The majority of lenders prefer to receive the money instead of going with the stress of taking the vehicle back. If the lender does decide to repossess your vehicle, they are generally not required to give you any sort of notice. The lender could send a driver to take the car away or hire a tow truck. If your vehicle is equipped with remote start, the lender could also block your ability to start the car. The laws in each state are different, the general rule is that a lender is generally allowed to access private property to repossess the car. However, it’s usually prohibited to break into the garage or damage the property. Is it possible for a co-signer to repossess the car? It’s important to be aware that attempting to fix the default on a loan yourself, also known as «taking things in your own hands» is not considered a acceptable alternative to legal action in the majority of states. The courts have this rule to avoid the kind of physical confrontations that can occur in the event that you try to seize your friend’s car, so let the dealer or bank take the car. How the credit of co-signers is affected by repossession co-signing means that you are legally accountable for the loan. When you co-signed the loan you have agreed with the lender that you would make sure the payments got paid even if the original borrower failed to pay the payments. This means that late payments or repossession will show up in your credit reports as well. Co-signer’s liability: As the co-signer of the vehicle, you are on the hook for this debt until it’s paid in full. Credit scores, your available cash , and your relationship with your delinquent co-signer are in jeopardy. If the situation is not good, all three of those things could suffer. Here are some reasons to be extremely cautious when agreeing to co-sign. Be cautious about who and who you are co-signing to. It’s a good idea to co-sign only for people that are close friends or relatives you are confident. Ideally, these are who have a stable financial situation. To help protect yourself in the event of a crisis, you may be thinking about creating an independent contract between you and the principal borrower. This contract would set out your expectations and define the respective obligations. Once this document is signed by both parties, have it notarized. Rights as a co-signer As the co-signer, you’re legally accountable for the debt but not you . There is no legal claim to the ownership of the car or any other asset. If the primary borrower falls behind on their car payments, you may think that you are entitled to take possession of the vehicle yourself, but you do not. One option you might have to safeguard yourself while co-signing a loan is to keep one payment in advance. You can contact the lender to find out the amount is delinquent (if there is any) and then pay it and then make a second payment. Then, even if the co-signer makes a second late payment any late payments will still count toward the balance and not affect your credit. It is just a matter of staying contact with the lender and stay 1 month in advance. The other option is to ask to be taken off of the loan. The principal borrower must sign a cosigner release and the lender will only give approval when the primary borrower proves that they are able to pay for the loan on their own. Credit repair after repossession an unpaid repossession on your credit file will result in your credit score to drop and negatively impact the ability to qualify for other kinds of loans. Repossessions last for seven years and you should take every step to ensure that the car you co-signed for doesn’t get repossessed. Depending on your relationship with the primary borrower you may be able to work out a deal. You could try to demand that they surrender the ownership of the vehicle in exchange for the rest of your payments. After the car has been fully paid, you could sell it and recover some of your cash. You might try to sue the primary borrower to seek compensation for damages however if they fail to pay the lender and then it’s unlikely they would pay you. If you do get a judgement against them, you’d need to be able to enforce it. It’s better not to let it get to the point of being able to enforce it. The bottom line Co-signing for the loan is a very risky option and puts your credit on the line. Before you co-sign for the auto loan or other type of loan, consider what you’ll do if the primary borrower fails to pay. Instead of co-signing, could consider working with them to find alternatives which don’t require co-signers. If you’ve co-signed a loan and the primary borrower is behind on payments There are several alternatives. It’s important to know that you don’t have the right to repossess the vehicle on your own. Instead, you’ll have to work out a solution with the borrower who is the primary lender or continue making the payments for the lender. Learn more:
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Authored by Points and Miles Expert Contributor Dan Miller is a former contributor to Bankrate. Dan wrote about loans as well as home equity and the management of debt in his writing. The edit was done by Rashawn Mitchner. Edited and written by associate loans Editor Rashawn Mitchner, who was formerly an associate editor at Bankrate.
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