Does My Loan Cosigner Have to Be on the Title or My Car Registration?

The co-signer of a loan is legally responsible for the repayment of the borrowed funds. A person whose name is on the title of your vehicle, along with your name, is considered a co-owner. While it is reasonable for a co-signer to also be the co-owner, this is not a legal requirement.

Co-signer

The co-signer of a loan guarantees the repayment of the borrowed amount. In simpler terms, if you default on your debt, whether it is a home-improvement loan or the money you had borrowed to buy a new car, the lender can hold the co-signer legally responsible for the shortfall. When you default, the co-signer is subject to the same measures, including wage garnishment and a freeze of his or her bank accounts, as you are. Naturally, banks always prefer to have a co-signer on the funds they lend out as this increases the probability of repayment. As a result, you can almost always get a lower interest rate on the loan if you have a financially sound co-signer.

Co-ownership

The co-owner of the vehicle is the individual whose name appears alongside yours on the title. While motor vehicle laws can vary by state, usually the signature of both owners are required to sell the vehicle. The sales proceeds can be shared in any way agreed upon by the co-owners. The law does not mandate that the income from the sale be split evenly between co-owners. It is therefore important that the co-owner is an individual you can trust and reach joint decisions with. Otherwise, disputes over sale is highly likely.

Requirments

There is no legal requirement for the loan's co-signer to also be a co-owner of the vehicle. If a friend or relative accepts to be legally responsible for your loan, it is often reasonable for them to ask to also co-own the vehicle. However, a parent, for instance may not require such a guarantee and happily co-sign a child's loan without mandating that his or her name be placed on the title as a co-owner. Keep in mind that the loan is handled by a financial institution, while the title is issued by the department of motor vehicles. The latter will not care how the vehicle was financed, as long as it is legally purchased.

Lien

When a bank or other financial institution provides a loan for the purchase of a car or any other motor vehicle, there will be a lien on the title. This means that the owner(s) cannot sell the vehicle without the consent of the loan provider, which often requires the repayment of the loan in full. The concept is very similar to a mortgage, which requires that you pay the loan before you are allowed to sell the home. Therefore, in reality neither co-owner truly owns the vehicle until the loan is repaid.