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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 aim is to assist you make smarter financial decisions by providing you with interactive financial calculators and tools, publishing original and objective content. We also allow you to conduct research and compare data at no cost – so that you can make informed financial decisions. Bankrate has partnerships with issuers, including but not limited to, American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Make Money The deals that are displayed on this website are provided by companies that pay us. This compensation could affect how and where products appear on the site, such as such things as the order in which they may be listed within the categories of listing, except where prohibited by law. This applies to our loan products, such as mortgages and home equity, and other products for home loans. However, this compensation will affect the information we publish, or the reviews that appear on this website. We do not cover the universe of companies or financial offerings that could be accessible to you. Oliver Rossi/Getty Images

2 min read Published October 12, 2022

Writer: Rebecca Betterton Written by Auto Loans Reporter Rebecca Betterton is the auto loans reporter for Bankrate. She is a specialist in helping readers in navigating the details of taking out loans to purchase a car. Edited by Rhys Subitch Edited by Auto loans editor Rhys has been editing and writing for Bankrate since the end of 2021. They are committed to helping readers feel confident to control their finances by providing clear, well-researched information that breaks down otherwise complex subjects into digestible pieces. The Bankrate promise

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Therefore, this compensation may impact how, where and when products are listed, except where prohibited by law for our mortgage or home equity, and other home lending products. Other factors, like our own website rules and whether the product is offered in your region or within your self-selected credit score range may also influence the way and place products are listed on this site. While we strive to provide the most diverse selection of products, Bankrate does not include information about each credit or financial products or services. Signing off as a could allow the vehicle to be owned for a family or friend member who might not be eligible to finance without your assistance. But co-signing carries a the risk that since you share equal legal responsibility for the loan late payments, or default will have an impact on your finances. However, if the owner of the vehicle is accountable, co-signing can help improve your credit. Five ways to protect yourself as a co-signer these points to protect your financial security should you decide to act as a co-signer on a future . 1. Use co-signers only for your closest friends or relatives The main danger of being a loan co-signer is potential damage to your credit. In general, you should assist a friend or family member who you trust -one with a steady income that is stable financially. It is essential to ensure that the principal borrower can pay but just didn’t qualify because of their lack of credit history or financial stability. 2. Be sure that your name is on the vehicle title Co-signers don’t hold ownership of the vehicle. This means that how you are named to the loan agreement is important. If you’re not listed in the title document, then you might not be able to claim legal rights to the vehicle, but you could be responsible for any future payments. Confirm that the title states you as the owner of the vehicle and not the primary one. This way the vehicle cannot sell without the two’ signatures. 3. You should draft a contract. While you will both sign off on the loan itself A separate contract that outlines your expectations of the primary borrower is an added layer of protection and serves as a reminder of the agreement’s severity. The contract does not have to be complicated. Just a promissory note outlining the obligations, costs and the consequences of default for both parties. Once you have both agreed, bring it to a notary public to be signed. 4. Track monthly payments One way to feel more confident in the ability of the borrower in making payments is to monitor the payment schedule for each month. It could be as easy as setting a calendar reminder to check on their spending. While this might feel awkward but remember that your credit is in danger. Just reach out and open up a conversation to keep track of your friend or family member without micromanaging the loan. 5. Be sure to have the funds for payments. When all else fails, you need to know that you will be able to pay the cost of the loan. If you’re unable to pay back the lender and your credit score could be at risk as you may be in danger of default and possibly legal action. The primary borrower has the most responsibility, but you are ultimately responsible for the loan as a co-signer. How co-signing an auto loan affects your credit The risks of co-signing a car loan are not difficult, but they could be serious. If the person who you co-sign for isn’t able to pay, your credit may be in for a major loss and be on the responsible for the loan. But there are also potential positive effects to your credit score Credit mix: Based on your current open credit accounts including an auto loan in your credit score can enhance what’s called your credit mix. The credit mix comprises 10 percent of the FICO credit score. History of payments: Just as your score can be lowered in the event that the primary borrower does not pay on time but it is possible to reap benefits in an insignificant scaleby them making regular timely payments. The bottom line : Being co-signer is an important financial decision that can lead to interpersonal or financial headaches. For many, it can make the difference between owning a vehicle or not. If you choose to sign a co-signer agreement take care to protect yourself and make certain that you have the funds to repay the loan in the event that the primary borrower defaults. Learn more


Written by Auto Loans Reporter Rebecca Betterton is the auto loans reporter for Bankrate. She specializes in assisting readers with the details of taking out loans to purchase a car. The article was edited by Rhys Subitch Edited by Auto loans editor Rhys has been editing and writing for Bankrate from late 2021. They are passionate about helping readers gain confidence to take control of their finances with clear, well-researched facts that break down complex subjects into bite-sized pieces.

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