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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 mission is to help you make better financial choices by offering you interactive financial calculators and tools that provide objective and unique content. This allows you to conduct research and compare data at no cost and help you make sound financial decisions. Bankrate has agreements with issuers, including but not limited to, American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Earn Money The deals that are displayed on this site come from companies that pay us. This compensation could affect how and when products are listed on the site, such as, for example, the order in which they appear within the listing categories, except where prohibited by law. This applies to our loans, mortgages,, and other home loan products. This compensation, however, does not influence the content we publish or the reviews that appear on this website. We do not contain the vast array of companies or financial deals that might be available to you. Oliver Rossi/Getty Images

2 minutes read. Published 12 October 2022

Writer: Rebecca Betterton Written by Auto Loans Reporter Rebecca Betterton is the auto loans reporter for Bankrate. She specializes in assisting readers to navigate the ins and outs of securely borrowing money to purchase an automobile. Written by Rhys Subitch Edited by Auto loans editor Rhys has been editing and writing for Bankrate since the end of 2021. They are passionate about helping readers to take control of their finances through providing precise, well-researched and well-informed information that breaks down otherwise complex subjects into digestible pieces. The Bankrate promises

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So, this compensation can impact how, where and in what order products are listed, except where prohibited by law for our mortgage or home equity, and other home lending products. Other factors, like our own rules for our website and whether a product is available in the area you reside in or is within your own personal credit score can also impact the way and place products are listed on this site. While we strive to provide a wide range offers, Bankrate does not include details about every financial or credit item or product. Signing off as a could allow the vehicle to be owned for a family or friend member who may not qualify for financing without your assistance. But co-signing comes with risk — since you share the same legal responsibility for the loan late payments, or default can affect your finances. If the car owner is responsible, co-signing could actually improve your credit. Five ways to safeguard yourself as a co-signer Consider these tips to ensure your financial security in the event that you decide to act as co-signer in the future for a . 1. Use co-signers only for close friends or relatives The main danger of being co-signer for a loan co-signer could cause damage to your credit. In general, you should assist a friend or family member who you trust -that is, someone who has a regular income and a stable financial situation. You must be sure that the primary borrower can pay but was not able to do so because of their insufficient the financial background or their age. 2. Check that your name appears on the title of the vehicle. Co-signers do not hold ownership to the car. This means that the way you’re named on the loan agreement is crucial. If you’re not listed on the title, you might not be able to claim legal rights to the vehicle, but you could be responsible for potential payments. Confirm that the title states you as the owner of the vehicle and not the primary one. This way the vehicle cannot be sold without both with their signatures. 3. Make a contract. Although you’ll both sign off on the loan in its entirety A separate contract detailing your expectations for the primary borrower is an additional layer of security and act as an indication of the agreement’s severity. The contract does not have to be complicated. A promissory note describing the costs, obligations and what default will mean to both sides. After you and your partner have reached an agreement take it to a notary public to get it signed. 4. Monitor monthly payments One method to increase confidence in the principal borrower’s capacity to pay is to monitor the payment schedule for each month. This could be as simple as setting a calendar reminder to monitor their expenditure. While it may feel awkward, remember that your credit score is on the line. Reach out and start up a conversation to keep track of your friend or family member without micromanaging the loan. 5. Ensure you can afford payments If all else fails, you must ensure that you will be able to pay the cost of the loan. If you’re unable to pay the lender and your credit score is at risk as you may be in danger of default and possibly legal actions. The principal borrower is responsible for the most responsibility, but you are ultimately on the hook for the loan as a co-signer. What happens when you co-sign an auto loan affects your credit The risks of co-signing a car loan are not difficult, but they could be grave. If the person you co-sign for does not pay, your credit score will be hit hard and you’ll be on hook for paying the loan. There are also advantages to your credit score Credit mix: Based on the credit you have open in your accounts, adding the car loan to your credit report could potentially enhance what’s called your credit mix. The credit mix comprises 10 percent part of your FICO credit score. Payment history: Just as your score can be lowered if the primary borrower doesn’t make timely payments but it is possible to reap benefits in an insignificant scale- from them making consistent timely payments. The bottom line : Being co-signer can be a major financial decision and could cause financial or interpersonal headaches. But for many, it is the difference between having an automobile or not. If you choose to co-sign the loan ensure you are protected and make certain that you have the funds to pay for the loan in the event that the principal co-signer defaults. Learn more


This article is written by Auto Loans Reporter Rebecca Betterton is the auto loans reporter for Bankrate. She has a specialization in helping readers to navigate the ways and pitfalls of taking out loans to purchase a car. Written by Rhys Subitch Edited by Auto loans editor Rhys has been editing and writing for Bankrate from late 2021. They are dedicated to helping readers gain the confidence to control their finances through providing clear, well-researched details that cut otherwise complex subjects into bite-sized pieces.

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