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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 contributing writer for Bankrate. Dan wrote about loans, home equity and the management of debt in his writing. Edited by Rashawn Mitchner. Edited and written by Associate loans editor Rashawn Mitchner is a former associate editor at Bankrate. The Bankrate guarantee
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We are compensated in exchange for the promotion of sponsored goods and, services, or by you clicking on certain links posted on our website. So, this compensation can impact how, where and when products appear within listing categories and categories, unless it is prohibited by law. We also offer mortgage, home equity and other home loan products. Other factors, such as our own proprietary website rules and whether or not a product is available in the area you reside in or is within your self-selected credit score range may also influence how and where products appear on this site. We strive to provide an array of offers, Bankrate does not include details about every financial or credit item or product. Co-signing an auto loan for a friend or loved one is a major financial decision. It means you are legally responsible for making the loan payments in the event that the person whom you’re cosigning for does not do so. As well as placing your cash at risk by co-signing an auto loan and putting at risk your credit. If the loan ends up in default, or the vehicle is eventually taken away the credit of your client will be damaged–even if you have a long tradition of paying all your bills on time. How auto repossession works the lease is signed or borrow money for the purchase of a vehicle but you don’t own the vehicle. The lender retains the title of the vehicle until you fulfill your obligations and pay off the loan. As part of the documents that you signed when you drove away with your vehicle, you granted your lender permission to take possession of your vehicle if you stop making payments. The lender will typically only take possession of a car as a last resort, in the event that you have stopped making payments and they believe there’s a slim chance that you’ll be able to be able to resume your payments. Most lenders would prefer receiving the money instead of going through the hassle of taking the car back. If you do find that a lender does decide to take possession of your vehicle, they are generally not required to issue any sort of notice. The lender could send a driver to remove the vehicle, or it may hire an tow vehicle. If your vehicle is equipped with remote start and you have a remote starter, the lender could also block your capability to start the vehicle. While laws vary by state, it is generally the case that a lender is generally permitted to enter private property to take possession of a car. However, it’s usually not permitted to enter the garage or cause damage to the property. Can a co-signer repossess the car? It’s important to be aware that making efforts to cure a default on the loan yourself, or “taking things in your own hands” is not considered a legitimate substitute for legal action in most states. Courts have this law to discourage the kind of physical confrontation that’s possible when you attempt to repossess your friend’s car, so let the dealer or bank repossess the vehicle. The credit score of a co-signer is affected by repossession co-signing is legally responsible for the debt. When you co-signed the loan and committing to the lender that you’d ensure that payments were paid even if the original borrower did not make them. That means that reposession or late payments will show up in your credit reports as well. If you are the co-signer on the car you’re on the hook for this debt until it is fully paid. The credit rating of your, your available cash , and your relationship with your delinquent co-signer are at risk. If things go poorly and you are not careful, all three factors could be affected. These are a few reasons why you should be extremely cautious when agreeing to be a co-signer. about who and what you are co-signing for. It’s best to only co-sign for individuals that are close friends or family members you are confident. It is ideal to choose those who have a stable financial situation. To help protect yourself in these situations, you could even consider establishing an independent contract between you and the primary borrower. The contract should define your expectations as well as each person’s obligations. After the document has been agreed to by both parties have it notarized. Rights as a cosigner a co-signer, you are legally accountable for the debt, however, it is not legally binding on you are not legally responsible for the debt . There is no legal claim to the ownership of the car or other property. If the primary borrower falls in arrears with their car payments, you may think that you have the right to seize the car on your own, but you do not. One option you might have to protect yourself when co-signing a loan is to keep one payment ahead. You can call the lender and find out what amount is delinquent (if any) and pay it and then make a second payment. In the event that the co-signer makes a second late payment any late payments are still counted towards the balance without hurting your credit score. Just keep contact to the lender and stay one month ahead. Another option is to ask to be removed from the loan. The borrower who is the primary one must agree to the cosigner release, in addition, they must also agree to the release of the cosigner. The lender will only grant approval in the event that the primary borrower can prove that they are able to pay for the loan by themselves. Building credit after repossession Having a repossession on your credit file will make your credit score fall and will negatively impact your ability to get or different types of loans. Repossessions for seven years are a thing of the past, so it is important to take every step to make sure that the vehicle you co-signed for isn’t repossessing. Based on your relationship with the principal borrower, you may be able come to a settlement. You could try to demand that they turn over the ownership of the vehicle in exchange for the rest of your payments. When the car is fully paid you may be able to sell it and recoup some of your money. You could try to sue the borrower who was your primary lender to get some compensation, but if they failed to make payments due the lender in full, it’s unlikely they would pay you. If you do get an order against them, you’ll need to be able to make it effective. It’s better not to let it reach that point. The bottom line Co-signing for an loan is a risky decision, and it puts your credit in danger. Before co-signing the auto loan or any other kind of loan think about what you’ll do if the primary borrower defaults. Instead of co-signing, might look into working with them find alternatives which don’t require co-signers. If you’ve co-signed a loan and the principal borrower is behind on payments there are a number of alternatives. It’s most important to understand that you do not have the power to take possession of the vehicle yourself. Instead, you’ll need to work out a solution with the principal borrower or continue to make payments for the lender. Learn more:
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Written by Points and Miles Expert Contributor Dan Miller is a former contributor to Bankrate. Dan covered loans, home equity , and debt management in his work. Edited by Rashawn Mitchner Edited by Associate loans editor Rashawn Mitchner is a former assistant editor at Bankrate.
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