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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 aim is to assist you make smarter financial decisions by offering you interactive financial calculators and tools, publishing original and objective content. We also allow you to conduct research and compare data at no cost to help you make informed financial decisions. Bankrate has agreements with issuers such as, but not limited to American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Make money The products that appear on this site come from companies that pay us. This compensation may impact how and where products appear on this website, for example such things as the order in which they may appear in the listing categories, except where prohibited by law. This applies to our mortgage, home equity and other home lending products. But this compensation does affect the content we publish or the reviews that you see on this site. We do not contain the universe of companies or financial offers that may be open 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 is a specialist in helping readers to navigate the ins and outs of securely taking out loans to purchase an automobile. Edited 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 by providing concise, well-studied information that is broken down into complex subjects into digestible pieces. The Bankrate guarantee

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We receive compensation for placement of sponsored products andservices or by you clicking on specific links on our site. Therefore, this compensation may impact how, where and when products appear within listing categories in the event that they are not permitted by law for our mortgage or home equity, and other products for home loans. Other elements, like our own rules for our website and whether a product is available within your area or at your self-selected credit score range could also affect how and where products appear on this site. While we strive to provide an array of offers, Bankrate does not include details about each credit or financial product or service. Co-signing as a customer is a way to make it possible to own a car for a friend or family member who might not be eligible for financing without your help. But co-signing carries a risk — since you share the same legal responsibility for the loan, missed payments or default could impact your financial situation. But if the vehicle owner is accountable, co-signing can actually improve your credit. Five ways to safeguard yourself as a co-signer these factors to safeguard your financial security if you decide to be co-signer for a future . 1. Serve as a co-signer only for your closest friends or relatives A big risk that comes with being co-signer on a loan co-signer could cause damage to your credit score. It is best to assist a friend or family member who you trust -one with a steady income who is financially stable. You need to be confident that the principal borrower is able to repay but they were not eligible because of their lack of the financial background or their age. 2. Be sure that your name is on the vehicle title Co-signers do not hold ownership for the automobile. This means that how you’re named in the loan agreement is crucial. If you are not named in the title document, then you might not have a legal claim to the vehicle, however you would be on the hook for future installments. Verify that the title lists that you are the primary owner as well as yourself. The vehicle can’t be sold without both having their signatures. 3. Create a contract Although you will both sign off on the loan itself, having a separate contract detailing your expectations of the principal borrower could be an additional layer of security and act as an indication of the agreement’s seriousness. This contract doesn’t have to be too complicated. Just a promissory note outlining the cost, obligations, and the consequences of default to both sides. Once you have both agreed that you will present it to a notary to be signed. 4. Monitor monthly payments One method to increase confidence in the ability of the borrower of paying is to track the monthly payment schedule. This could be as simple as setting up a reminder on a calendar to monitor the amount they spend. While it may feel awkward however, keep in mind that your credit is on the line. Simply reach out and open the conversation to inquire about 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 you must ensure that you can cover the payments on the loan. If you’re not able to pay back the lender and your credit score could be at risk — and you could be at risk of default or other legal action. The primary borrower has the majority of the 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 risks of co-signing a car loan are not difficult, but they could be grave. 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 the responsibility of paying for the loan. But there are also potential benefits to your credit score: Credit mix: Depending on your current open credit accounts, adding the car loan on your credit file may enhance what’s called the credit score. Your credit mix is 10% part of your FICO credit score. History of payments: Just as your score can be lowered if the primary borrower doesn’t pay on time, it’s possible to benefit but on an insignificant scaleby having them make consistent timely payments. The bottom line : Being a co-signer is a big financial decision that can result in financial or interpersonal headaches. But for many, it is the difference between owning a vehicle or not. So if you decide to be a co-signer ensure you are protected and make certain that you have the funds to repay the loan in the event that the primary borrower fails to pay. Find out more

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This article is written by Auto Loans Reporter Rebecca Betterton is the auto loans reporter for Bankrate. She specializes in assisting readers in navigating the details 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 since the end of 2021. They are passionate about helping readers gain confidence to manage their finances by providing precise, well-researched and well-sourced facts that break down otherwise complex subjects into bite-sized pieces.

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