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4 min read. Published September 30 2022
Authored by Dan Miller Written 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 work. The article was edited by Rashawn Mitchner Edited by the associate loans Editor Rashawn Mitchner who was an editor in charge at Bankrate. The Bankrate guarantee
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This compensation could impact how, where and in what order items are listed, except where prohibited by law. We also offer mortgage or home equity products, as well as other products for home loans. Other factors, like our own rules for our website and whether a product is offered in the area you reside in or is within your self-selected credit score range could also affect how and where products appear on this site. While we strive to provide the most diverse selection of products, Bankrate does not include details about every financial or credit product or service. Co-signing an auto loan for someone you love is a major financial decision. It means you are legally accountable for the loan payments if the individual whom you’re cosigning for does not make the payments. As well as putting your cash at risk by co-signing an auto loan as well, you’re also putting at risk your credit. If the loan is in default, or the vehicle is ultimately repossessed the credit of your client will be damaged, even if you have an extensive history of paying all of your bills in time. How auto repossession works the lease is signed agreement or take out a loan for an automobile but you don’t own the car. The lender keeps the title for the vehicle until you fulfill your obligations and pay off the loan. As part of the documents you signed when you drove away with your car, you agreed to give your lender permission to repossess your vehicle if you stop paying the loan. Most lenders will only repossess cars in the last instance, when you’ve stopped making payments and they believe there’s little chance that you’ll be able to resume payments. Most lenders would prefer receiving payment instead of having to go with the stress of bringing the vehicle back. If the lender does decide to repossess your vehicle, they are generally not required to provide you with any kind of notice. The lender might send a chauffeur to remove the vehicle, or it may hire an tow vehicle. If your vehicle has a remote start it is possible that the lender could also block your capability to start the vehicle. Although laws differ by state, it is generally the case that a lender is generally permitted to enter private property to seize the vehicle. However, it’s generally prohibited to break into a garage or otherwise damage your property. What happens when a co-signer is unable to take possession of a car? It’s crucial to understand that making efforts to cure a default on an loan yourself, also known as «taking matters to yourself,» is not considered to be a acceptable alternative to legal action in all states. The courts have this rule to avoid the kind of physical confrontation that’s possible when you try to take possession of your friend’s car, so allow the dealership or the bank repossess the vehicle. How the credit of co-signers will be affected by repossession a co-signer is legally responsible for the loan. In co-signing the loan and committing to the lender that you would ensure that payments were made even if the primary borrower didn’t make the payments. This means that the late payment or repossession could show up in your credit reports, too. If you are the co-signer for the car you’re the one on the hook for this debt until it’s completely paid. Your credit score, available cash , and the relationship you have with your co-signer who is in default are in jeopardy. If things go wrong and you are not careful, all three issues could be affected. There are several reasons to be cautious when signing to be a co-signer. Be cautious about who and who you sign to. It’s a good idea to only sign for those that are close friends or relatives you can trust. In the ideal scenario, they have a stable financial situation. To help protect yourself in these situations, you could even consider establishing a separate contract between yourself and the primary borrower. The contract should set out your expectations and define the obligations of each party. When the contract is executed by both parties, make sure it is notarized. Rights as a co-signer a co-signer, you are legally responsible for the debt but not you are not legally responsible for the debt . You have no legal right to the ownership of the vehicle or other property. If the primary borrower falls in arrears with their car payments and you think you are entitled to seize the car on your own however, you don’t. Another option to safeguard yourself while co-signing the loan is to keep one payment in advance. You can call the lender, find out what amount is in arrears (if any) and pay it and then make another payment. If your co-signer is late on another payment the late payment are still counted towards the balance without hurting your credit. It is just a matter of staying in contact with the lender and always stay one month ahead. Another option is to request to be removed from the loan. The primary borrower has to agree to the cosigner release as well as the lender will only grant approval in the event that the primary borrower can prove that they are able to pay for the loan on their own. Building credit following repossession a repossession on your credit report can result in your credit score to decrease and can have a negative impact on your ability to get or other kinds of loans. The repossession period is seven years long and you should do everything you can to ensure that the car you co-signed for doesn’t end up being taken away. Based on your relationship with the primary borrower you might be able to come to a settlement. You can try to request that they hand over the ownership of the vehicle while you make the remaining payments. After the car has been completely paid for, you could sell it and recover some of your cash. You could try to sue the primary borrower to recover some damages however if they fail to make payments due the lender and then it’s unlikely that they will pay you. Even if you win a judgment against them, you’ll need to be able to make it effective. It’s much better to not allow it to get to this point. The bottom line: Co-signing a loan is a risky decision as it puts your credit at risk. Before co-signing the auto loan or other type of loan, consider what you’ll do in the event that the primary borrower fails to pay. Rather than co-signing, you may look into working with them find alternatives which don’t require co-signers. If you’ve signed a loan and the borrower isn’t making payments, you have a few options. It is crucial to realize that you don’t have the power to take possession of the car yourself. Instead, you’ll have to negotiate a deal with the borrower who is the primary lender or continue to pay the loan for the lender. Learn more:
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Written by Points and Miles Expert Contributor Dan Miller is a former contributor for Bankrate. Dan covered loans, home equity and the management of debt in his work. The edit was done by Rashawn Mitchner. Edited by Associate loans Editor Rashawn Mitchner who was an editor in the associate department at Bankrate.
Associate loans editor
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