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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 goal is to help you make better financial decisions by providing you with interactive financial calculators and tools that provide objective and unique content. This allows you to conduct your own research and compare data for free — so that you can make financial decisions with confidence. Bankrate has partnerships with issuers including, but not limited to, American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Make Money The offers that appear on this site are from companies that compensate us. This compensation can affect the way and when products are featured on the site, such as for instance, the sequence in which they appear in the listing categories in the event that they are not permitted by law for our mortgage, home equity and other home lending products. This compensation, however, does not influence the information we publish, or the reviews 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 min read Published on October 12, 2022.

Written by 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 details of borrowing money to purchase a car. 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 gain the confidence to manage their finances with clear, well-researched information that breaks down otherwise complex subjects into digestible pieces. The Bankrate promise

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There are money-related questions. Bankrate has answers. Our experts have been helping you master your money for over four decades. We strive to continuously 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 , therefore you can be confident that our content is truthful and reliable. Our award-winning editors, reporters and editors produce honest and reliable content to help you make the best financial decisions. The content created by our editorial staff is honest, truthful and uninfluenced from our advertising. We’re transparent about how we are in a position to provide quality content, competitive rates and helpful tools to you by explaining how we earn money. Bankrate.com is an independent, advertising-supported publisher and comparison service. We are compensated for the promotion of sponsored goods andservices or by you clicking on certain links posted on our site. This compensation could impact how, where and in what order products appear in listing categories, except where prohibited by law. This is the case for our mortgage and home equity products, as well as other home loan products. Other factors, such as our own rules for our website and whether the product is available in your area or at your own personal credit score may also influence the manner in which products appear on this site. Although we try to offer an array of offers, Bankrate does not include details about every credit or financial products or services. Signing off as a is a way to make it possible to own a car for a relative or friend member who isn’t eligible to finance without your assistance. But co-signing comes with risks, as you share the same legal responsibility for the loan and missed payments. default could impact your financial situation. But if the vehicle owner is accountable, co-signing can increase your credit score. Five ways to safeguard yourself as a co-signer Consider these points to protect your financial security if you decide to be co-signer in the future for a . 1. Serve as a co-signer only for close friends and relatives A big risk that comes with co-signing as a loan co-signer can cause harm to your credit score. Ideally, you should only aid a family member or friend member who you trust — someone with a consistent income that is stable financially. You need to be confident that the principal borrower is able to repay but was not able to do so because of their lack of financial history or age. 2. Be sure that your name is on the title of the vehicle. Co-signers are not the owners of the vehicle. This means that the way you’re listed in the loan agreement matters. If you’re not listed in the title document, then you might not be able to claim legal rights on the vehicle but would be on the hook for any future payments. Confirm that the title states you as the owner of the vehicle and not the primary one. This way the vehicle cannot sell without the two parties having their signatures. 3. You should draft a contract. While you’ll both sign off on the loan in its entirety, having a separate contract 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. This contract doesn’t have to be too complicated. A promissory note describing the costs, obligations and what default means each party. Once you have both agreed that you will present it to a notary public to have it finalized. 4. Monitor monthly payments One method to feel more confident in the ability of the borrower of paying is to track the monthly payment schedule. It could be as easy as setting a reminder in the calendar to monitor their expenditure. While this might feel awkward but remember that your credit score is on the line. Simply reach out and open the conversation to keep track of your family member or friend without micromanaging the loan. 5. Ensure you can afford payments When all else fails, it is essential to ensure that you can cover the payments on the loan. If you’re not able to pay the lender then your credit score is at risk — as well as the fact that you could be in danger of default and possibly legal action. The primary borrower has the most responsibility however you’re responsible for the loan as co-signer. What happens when you co-sign an auto loan affects your credit The dangers of co-signing a vehicle loan are simple though potentially serious. If the person you co-sign for does not pay, your credit score could take a big hit and be on the responsible for the loan. But there are also potential benefits to your credit score Credit mix: Depending on the current credit accounts including a car loan on your credit file can increase what’s known as the credit score. Your credit mix is 10 percent of the FICO credit score. Payment history: Just as your score may decrease if the primary borrower doesn’t pay on time, it’s possible to benefit but on a much smaller scale — from them making consistent punctual payments. In the end, acting as co-signer can be a major financial decision and could result in financial or interpersonal problems. But for many, it is the difference between having an automobile or not. If you choose to co-sign the loan, protect yourself and be sure you can afford to pay for the loan in case the primary co-signer defaults. Find out more

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Written by Auto Loans Reporter Rebecca Betterton is the auto loans reporter for Bankrate. She is a specialist in helping readers to navigate the ways and pitfalls of borrowing money to buy a car. Edited by Rhys Subitch Edited by Auto loans editor Rhys has been writing and editing for Bankrate since late 2021. They are passionate about helping readers gain confidence to manage their finances through providing clear, well-researched information that breaks down complicated topics into digestible pieces.

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