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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 as well as home equity and debt management in his work. Written by Rashawn Mitchner. Edited by Associate loans Editor Rashawn Mitchner, who was a former editor in charge at Bankrate. The Bankrate promises
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We receive compensation for placement of sponsored products and, services, or when you click on specific links on our site. This compensation could affect the way, location and when products appear within listing categories, except where prohibited by law for our mortgage, home equity and other home lending products. Other factors, such as our own website rules and whether the product is offered in your area or at your own personal credit score may also influence the way and place products are listed on this website. Although we try to offer an array of offers, Bankrate does not include information about each credit or financial product or service. Co-signing a car loan for someone you love is a serious financial choice. This means that you’re legally responsible for making the loan payments in the event that the person who you co-sign for fails to do so. In addition to putting your cash at risk by co-signing an auto loan, you’re also risking your credit. If the loan gets in the way of default or the car is eventually taken away the credit of your client will be damaged, even if you have long-standing tradition of paying all your bills on time. How auto repossession works you contract a lease agreement or purchase the purchase of a vehicle but you don’t own the car. The lender keeps the title for the car until you have fulfilled your obligations and pay off the loan. In the paperwork you signed when you drove away with the vehicle, you granted the lender the right to take possession of your vehicle if you stop making payments. The lender will typically only take possession of the vehicle as a last resort, in the event that you have stopped making payments and they think there’s little chance that you’ll be able to return to payments. Most lenders would prefer receiving payment instead of having to go to the trouble of having to take the vehicle back. If the lender decides to repossess your vehicle, they are generally not required to provide you with any sort of notice. The lender may send a driver to take the car away or hire a tow truck. If your vehicle has a remote start, the lender could also block your capability to start your car. Although laws differ by state the state, the general rule is that a lender is generally allowed to come onto private property to seize the vehicle. But, it’s not permitted to enter the garage or damage your property. What happens when a co-signer is unable to take possession of a car? It is important to know that making efforts to cure the default on a loan yourself, aka “taking matters into your own hands,” is not considered to be a acceptable alternative to legal action in the majority of states. The courts have this rule to avoid the kind of physical conflict that could occur when you attempt to repossess your friend’s car, so let the dealer or bank take the vehicle. How the credit of co-signers will be affected by repossession a co-signer is legally responsible for the debt. In co-signing the loan you have agreed with the lender that you’d make sure the payments got paid even if the original borrower did not pay them. That means that reposession or late payments will show up upon your credit file, too. Co-signer’s liability: As the co-signer for the car you’re the one responsible for this debt until it is paid in full. Credit scores, your available cash , and your relationship with your co-signer who is in default are at risk. If things go poorly and you are not careful, all three things could suffer. There are several reasons to be extremely cautious when agreeing to sign a co-signer. About who and what you are co-signing for. It’s best to only co-sign for individuals who are close to you or relatives you can trust. It is ideal to choose those who have a stable financial situation. To protect yourself from the event of a crisis, you may even consider establishing an individual contract between you and the principal borrower. This contract would define your expectations as well as each person’s obligations. When the contract is signed by both parties, get it notarized. Rights as a co-signer As a co-signer, you are legally accountable for the debt, but you do not have any legal rights to the debt . You do not have a legal right to ownership of the car or any other asset. If the primary borrower falls behind on their car payment and you think you have the right to repossess the car yourself, but you do not. One way to safeguard yourself while co-signing the loan is to keep one step ahead. You can contact the lender to find out the amount is delinquent (if there is any) and then pay it and then make another payment. In the event that the co-signer makes a second late payment, any late payments are still counted towards the balance and not affect your credit. You just need to keep in contact with your lender and make sure you are one month ahead. Another option is to ask to be removed from the loan. The principal borrower must accept the release of cosigners, and they must also agree to the release of the cosigner. The lender will only grant approval when the primary borrower proves that they can pay the loan by themselves. Credit repair after repossession a repossession on your credit report will make your credit score fall and will have a negative impact on the ability to qualify for different types of loans. The repossession period is seven years long, so you want to do everything you can to ensure that the vehicle you signed for doesn’t end up being repossessed. Depending on your relationship with the primary borrower, you may be able work out a deal. You could ask that they surrender the ownership of the vehicle while you make the remaining payments. After the car has been paid in full you can sell it and recoup some of your money. You might try to sue the primary borrower to seek compensation for damages If they failed in their obligation to repay the lender and then it’s unlikely they would pay you. Even if you get an order against them, you’ll need to know how to make it effective. It’s best not to allow it to get to that point. The bottom line: Co-signing a loan is an incredibly risky thing to do, and it puts your credit in danger. Before co-signing an auto loan or other type of loan think about what you’ll do if the primary borrower fails to pay. Instead of co-signing, might consider working with them to and looking for options that don’t require a cosigner. If you’ve co-signed for an loan and the borrower isn’t making payments There are several options. It’s important to know that you do not have the right to repossess the vehicle yourself. Instead, you’ll have to work out a solution with the primary borrower or continue to pay the loan to the lender. Find out more about:
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The article was written by Points and Miles Expert Contributor Dan Miller is a former contributor for Bankrate. Dan covered loans as well as home equity and the management of debt in his writing. The edit was done by Rashawn Mitchner. Edited by Associate loans editor Rashawn Mitchner is a former editor in the associate department at Bankrate.
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