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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 contributor to Bankrate. Dan was a frequent contributor to loans as well as home equity and the management of debt in his work. Edited by Rashawn Mitchner Edited by Associate loans Editor Rashawn Mitchner, who was a former associate editor at Bankrate. The Bankrate promises
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We are compensated for placement of sponsored products and, services, or by you clicking on certain links posted on our site. This compensation could influence the manner, place and when products are displayed within the categories of listing, except where prohibited by law. We also offer mortgage, home equity and other products for home loans. Other elements, such as our own website rules and whether or not a product is available in your region or within your own personal credit score may also influence the manner in which products appear on this site. Although we try to offer an array of offers, Bankrate does not include details about every credit or financial product or service. Co-signing a car loan for a friend or loved one is a major financial decision. It implies that you’re legally accountable for the loan payments if the individual whom you’re cosigning for does not pay the loan. In addition to placing your cash at risk when you co-sign an auto loan and putting at risk your credit. If the loan is in default or the car is eventually taken away and your credit is damaged, even if you have an extensive history of paying all of your obligations punctually. How auto repossession works When you contract a lease agreement or purchase an automobile however, you do not actually own the vehicle. The lender keeps the title for the vehicle until you fulfill your obligations and pay off the loan. In the paperwork you signed when you drove away with the car, you gave the lender an option to repossess your vehicle if you stop paying the loan. The lender will typically only take possession of a car in the last instance, when you’ve stopped making payments and they think there’s little to no chance you’ll return to payments. Most lenders would prefer receiving payments rather than going through the hassle of bringing the vehicle back. If a lender decides to repossess your vehicle, they are generally not required to issue any kind of notice. The lender could send a driver to take the car away, or it may hire a tow truck. If your vehicle is equipped with remote start, the lender could also block your capability to start the vehicle. The laws in each state are different however, the general rule is that a lender is usually allowed to come onto private property to seize the vehicle. However, it’s usually not allowed to break into a garage or otherwise damage the property. Is it possible for a co-signer to repossess the car? It’s important to be aware that trying to resolve any defaults 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. Courts have this law to prevent the type of physical confrontation that’s possible when you try to take possession of your friend’s car, so let the dealer or bank take it. The credit score of a co-signer is affected by repossession co-signing a loan means that you are legally accountable for the debt. When you co-signed the loan you have agreed with the lender that you would make sure the payments got completed even if the primary borrower did not pay them. This means that reposession or late payments will appear in your credit reports as well. Co-signer’s liability: As the co-signer for the car you’re the one responsible for this obligation until it is fully paid. Your credit score, your cash reserves, and the relationship you have with your co-signer who is in default are at risk. If things go poorly and you are not careful, all three factors could be affected. There are several reasons that you should be very cautious when deciding to be a co-signer. about who and what you sign to. It’s best to only co-sign for individuals who are close to you or relatives you trust. Ideally, these are who are financially stable. To help protect yourself in these situations, you could even consider establishing a separate contract between yourself and the principal borrower. The contract should define your expectations as well as the obligations of each party. When the contract is signed by both parties, make sure it is notarized. Rights as a co-signer a co-signer, you are legally accountable for the debt, however, it is not legally binding on you . 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 You might think you are entitled to repossess the car yourself, but you do not. One way to protect yourself when co-signing a loan is to keep one payment ahead. Contact the lender, find out what amount is delinquent (if there is any) and pay it, and then make one additional payment. Then, even if the co-signer makes a second late payment the late payment are still counted towards the balance, without affecting your credit. You just need to keep in touch to the lender and make sure you are one month ahead. The other option is to ask to be removed from the loan. The principal borrower must accept the release of cosigners, and it is the lender will only approve in the event that the primary borrower can prove that they can pay the loan by themselves. Credit repair after repossession a 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 for seven years are a thing of the past, so it is important to make every effort to make sure that the car you co-signed for isn’t repossessing. Depending on your relationship with the primary borrower you may be able negotiate a deal. You can try to request that they surrender the ownership of the vehicle in exchange for the rest of your payments. Once the car is fully paid you can sell it and recoup some of the money. You could try to sue the principal borrower to recover some damages, but if they failed in their obligation to repay the lender, then it is likely that they won’t pay. Even if you win a judgment against them, you’d need to be able to make it effective. It’s best not to let it get to the point of being able to enforce it. The bottom line Co-signing for the loan is a risky thing to do as it puts your credit at risk. Before co-signing the auto loan or any other kind of loan, consider what you will do if the primary borrower fails to pay. Instead of co-signing, could consider working with them to and looking for options that don’t require a co-signer. If you’ve co-signed for a loan and the primary borrower is in arrears with payments, you have a few alternatives. It’s most important to understand that you don’t have the power to take possession of the vehicle on your own. Instead, you’ll need to work out a solution with the principal borrower or continue to pay the loan towards 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, home equity and managing debts in his work. Edited by Rashawn Mitchner. Edited and written by associate loans Editor Rashawn Mitchner is a former associate editor at Bankrate.
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