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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, home equity and debt management in his writing. Edited by Rashawn Mitchner Edited by the associate loans editor Rashawn Mitchner is a former editor in charge at Bankrate. The Bankrate guarantee

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You have money questions. Bankrate has answers. Our experts have been helping you master your money for over four years. We continually strive to give our customers the right advice and tools needed to make it through life’s financial journey. Bankrate adheres to a strict code of conduct , so you can trust that our content is honest and reliable. Our award-winning editors, reporters and editors create honest and accurate content that will help you make the right financial choices. The content created by our editorial team is objective, factual and uninfluenced through our sponsors. We’re open about the ways we’re in a position to provide quality content, competitive rates and useful tools to our customers by revealing how we make money. Bankrate.com is an independent, advertising-supported publisher and comparison service. We are compensated for placement of sponsored products and services or through you clicking specific links on our website. This compensation could influence the manner, place and in what order products appear within listing categories and categories, unless it is prohibited by law. We also offer mortgage or home equity products, as well as other products for home loans. Other elements, such as our own rules for our website and whether or not a product is available in your region or within your personal credit score may also influence the manner in which products appear on this site. We strive to provide the most diverse selection of products, Bankrate does not include details about every credit or financial item or product. Co-signing a car loan for the benefit of a loved one or friend is a serious financial choice. This means that you’re legally responsible for loan payments if the person who you co-sign for fails to pay the loan. In addition to putting your cash on the line when cosigning an auto loan, you’re also risking your credit. If the loan is in default or the car is eventually taken away and your credit is damaged–even if you have long-standing history of paying all of your charges in time. How auto repossession works the lease is signed agreement or borrow money for an automobile however, you do not actually own the car. The lender retains the title to the vehicle until you fulfill your obligations and repay the loan. In the paperwork you signed when you drove off in the vehicle, you granted to the lender the right to repossess the car if you cease paying the loan. 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 little to no chance you’ll resume payments. Many lenders would rather receive payments rather than going with the stress of having to take the vehicle back. If you do find that a lender decides to repossess your car, it’s generally not required to give you any sort of notice. The lender could send a driver to drive the car away or may employ the tow-truck. If your car has remote start it is possible that 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 usually allowed to access private property to take possession of the vehicle. But, it’s not allowed to break into the garage or cause damage to your property. What happens when a co-signer is unable to take possession of the car? It’s crucial to understand that attempting to fix any defaults on a loan yourself, also known as “taking things to yourself,” is not considered a acceptable alternative to legal action in most states. Courts have this rule to discourage the kind of physical conflict that could occur when you attempt to repossess your friend’s vehicle, so let the dealer or the bank take it. How the credit of co-signers will be affected by repossession co-signing a loan means that you are legally accountable for the debt. In co-signing the loan and committing to the lender that you would ensure that the payments were completed even if the primary borrower failed to make the payments. So, the late payment or repossession could appear on your credit report too. Co-signer’s liability: As the co-signer on the car, you are in the position of being responsible for the obligation until it is paid in full. Your credit score, available cash , and the relationship you have with your co-signer who is in default are at risk. If things go wrong and you are not careful, all three factors could be affected. Here are some reasons why you should be cautious when signing to sign a co-signer. Be cautious about who and who you co-sign to. It’s a good idea to co-sign only for people that are close friends or relatives you can trust. In the ideal scenario, they are financially stable. To help protect yourself in such situations, you might think about establishing a separate contract between yourself and the principal borrower. This document will define your expectations as well as each person’s obligations. When the contract is signed by both parties, make sure it is notarized. Rights as a co-signer As the co-signer, you’re legally responsible for the debt, however, it is not legally binding on you . There is no legal claim to ownership of the car or other property. If the principal borrower is behind on their car payment, you may think that you have the right to seize the car on your own however, you don’t. Another option to protect yourself when co-signing the loan is to make sure you are one step ahead. Contact the lender and find out what amount is delinquent (if any) and then pay it and then make one additional payment. If your co-signer is late on another payment the late payment can still be counted toward the balance and not affect your credit score. It is just a matter of staying contact with the lender and always stay 1 month in advance. The other option is to ask to be removed from the loan. The borrower who is the primary one must sign a cosigner release, as well as the lender will only give approval if the primary borrower shows that they can pay the loan by themselves. Building credit following repossession a repossession on your credit file will cause your credit score to fall and will affect your eligibility to obtain other kinds of loans. The repossession period is seven years long, so you want to take every step to make sure that the vehicle you signed for doesn’t end up being taken away. Depending on your relationship with the principal borrower, you might be able to work out a deal. You can try to request that they surrender ownership of the car while you make the remaining payments. Once the car is fully paid you can sell it and recoup some of your cash. You may want to sue the borrower who was your primary lender to seek compensation for damages, but if they failed in their obligation to repay the lender in full, it’s unlikely they would pay you. If you do get a judgement against them, you’ll need to know how to make it effective. It’s much better to not let it reach that point. The bottom line: Co-signing a loan is a very risky thing to do and puts your credit in danger. If you are considering co-signing for an auto loan or other type of loan, consider what you’ll do if the primary borrower fails to pay. Instead of co-signing, you might think about working with them look for alternatives that don’t require a co-signer. If you’ve co-signed an loan and the primary borrower is in arrears with payments there are a number of alternatives. It is crucial to realize 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 primary borrower or continue making the payments towards the lender. Learn more:


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 managing debts in his work. Written by Rashawn Mitchner. Edited and written by associate loans editor Rashawn Mitchner, who was formerly an editor in the associate department at Bankrate.

Associate loans editor

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