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 goal is to help you make better financial choices by providing you with interactive financial calculators and tools as well as publishing authoritative and original content. This allows users to conduct research and compare data at no cost to help you make financial decisions with confidence. Bankrate has agreements with issuers such as, but not restricted to, American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Make Money The deals that are displayed on this site come from companies that compensate us. This compensation may impact how and where products appear on this site, including for instance, the order in which they appear within the listing categories in the event that they are not permitted by law for our loans, mortgages,, and other home lending products. But this compensation does not influence the content we publish or the reviews that you see on this site. We do not cover the entire universe of businesses or financial offers that may be available to you. Oliver Rossi/Getty Images

2 min read Published on October 12, 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 details of borrowing money 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 their readers gain the confidence to manage their finances through providing concise, well-studied facts that break down complex subjects into digestible pieces. The Bankrate guarantee

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Therefore, this compensation may influence the manner, place and in what order products appear in listing categories in the event that they are not permitted by law. We also offer mortgage and home equity products, as well as other products for home loans. Other elements, like our own rules for our website and whether or not a product is available within the area you reside in or is within your self-selected credit score range can also impact the manner in which products appear on this site. While we strive to provide a wide range offers, Bankrate does not include specific information on every credit or financial item or product. The act of signing off as a cosigner is a way to make it possible to own a car for a friend or family member who may not qualify for financing without your help. But co-signing carries a risks, as you are both legally responsible for the loan late payments, or default could have an impact on your finances. If the car owner is responsible, co-signing could help improve your credit. Five ways to protect yourself as a co-signer these factors to safeguard your financial security if you decide to act as a co-signer on a future . 1. Serve as a co-signer only for close friends or relatives The main risk that comes with acting as co-signer for a loan co-signer can cause damage to your credit. Ideally, you should only help a family or friend member whom you trust- someone with a consistent income and a stable financial situation. You need to be confident that the principal borrower is able to repay but they were not eligible because of their lack of credit history or financial stability. 2. Be sure that your name is on the vehicle title Co-signers do not hold ownership for the automobile. This means that the way you’re listed to the loan agreement is important. If you’re not listed in the title document, then you may not be able to claim legal rights on the vehicle but would be on the hook for future installments. Confirm that the title states that you are the primary owner as well as yourself. The vehicle can’t sell without the two having their signatures. 3. Create a contract Although you’ll both sign off on the loan itself and the contract itself, having a separate one that outlines your expectations of the principal borrower could be an added layer of protection and serve as an indicator of the contract’s seriousness. The contract does not have to be too complicated. It’s just a promissory note that outlines the obligations, costs and what default will mean for both parties. After you and your partner have reached an agreement take it to a notary public to have it finalized. 4. Track monthly payments One way to increase confidence in the ability of the borrower in making payments is to track the payment schedule for each month. It could be as easy as setting up a reminder on a calendar to keep track of their spending. While it may feel awkward however, keep in mind that your credit score is at risk. Just reach out and open up a conversation to keep track of your friend or family member without supervising the loan. 5. Make sure you have enough money to pay the loan. In the event that all else fails it is essential to ensure that you can cover the costs of the loan. If you’re unable to pay the lender, your credit score could be at risk — as well as the fact that you could be at risk of default or other legal actions. The primary borrower has the most responsibility, but you are ultimately in the middle of the loan as co-signer. What happens when you co-sign an auto loan impacts your credit score The risk of co-signing for a car loan aren’t difficult but 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 you’ll be on responsible for the loan. However, there are other potential advantages to your credit score Credit mix: Depending on your current open credit accounts including an auto loan in your credit score can enhance what’s called”your credit mixture. Your credit mix is 10 percent of the FICO credit score. Pay history: While your score could decrease when the primary borrower fails to pay on time It is also possible to gain in an insignificant scale- from them making consistent on-time payments. The bottom line Acting as co-signer is an important financial decision and could lead to interpersonal or financial problems. For many, it makes the difference between owning an automobile or not. So if you decide to sign a co-signer agreement, protect yourself and be sure you can afford to pay the loan in the event that the principal borrower fails to pay. Find out more


Written by Auto Loans Reporter Rebecca Betterton is the auto loans reporter for Bankrate. She has a specialization in helping readers to navigate the ins and outs of securely borrowing money to buy cars. Written by Rhys Subitch Edited by Auto loans editor Rhys has been writing and editing for Bankrate since late 2021. They are dedicated to helping readers gain the confidence to control their finances by providing precise, well-researched and well-sourced details that cut complicated topics into digestible pieces.

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