Things to Know Before You Co-Sign on a Car Loan

If you have a friend or family member who needs a little help getting a car loan, you may be tempted to sign on the dotted line before weighing the risks. However, before guaranteeing the loan, it’s best to take a moment to crunch some numbers, understand your obligations, and inquire about your loved one’s…

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Things to Know Before You Co-Sign on a Car Loan | The News Wheel

If you have a friend or family member who needs a little help getting a car loan, you may be tempted to sign on the dotted line before weighing the risks. However, before guaranteeing the loan, it’s best to take a moment to crunch some numbers, understand your obligations, and inquire about your loved one’s financial status. Here are a few factors to consider.

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As a co-signer, you’re being asked to guarantee that the lender receives full payment. In other words, if the primary borrower fails to make payments according to the loan’s terms, understand that you’ll be on the hook for the full amount of the balance, including any late fees. On top of that, the lender can pursue your payments using standard methods, including wage garnishment and legal action.

Even if you pay for the full amount of the loan, you’re still just the co-signer on the loan. That means you won’t be legally entitled to the vehicle — it still belongs to the primary borrower, even if they hardly made payments on it. That’s because ownership has to do with the vehicle’s title, not who paid for it. However, this can vary from state to state, so read up on your state’s laws to be sure.

If you agree to be a co-signer for a friend or relative, try to counsel your loved one to make a reasonable financial decision. A young adult or a borrower with a spotty credit history will likely have an easier time paying for a used vehicle. After all, if the primary borrower can comfortably make payments, you’re less likely to have to intervene on their behalf.

Have an honest discussion about what you — and the primary borrower can afford. This is particularly critical if you’re on a fixed income, or the borrower has an unsteady stream of income or a history of defaulting on loans. On top of that, it’s within reason to request that the lender send you monthly statements, so you can ensure that the borrower is making good on the loan. 

To help your loved one get a good deal on a vehicle, check out our guide to saving money on a new car.

Kimiko Kidd is a native Daytonian. She graduated from Wright State University with degrees in environmental science and sociology. She loves her trusty old Honda Civic, but dreams of owning a 1974 Ford Falcon XB with a custom paint job and a vintage Kawasaki Z1000. In her free time, Kimiko can be found watercolor-painting, baking muffins, collecting rocks, playing old-school Nintendo games, writing her novel, sewing stuffed animals, and cosplaying as her favorite Mad Max characters. See more articles by Kimiko.

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