Some people who cosign a vehicle loan for a friend or relative fail to realize the implications of what they're doing. Cosigning that loan isn't simply being helpful; it's taking on an obligation. If the person responsible for the loan fails to make his payments, you have to do it for him, whether or not your name is on the car title.
Making Payments
You cosigned a car loan for a friend and he's made all his payments on time so far. That's good because he's building a solid credit history and yours is protected. You don't have the right to take his ride for a spin just because you cosigned the loan. Just be glad he's a responsible borrower.
Lapsing
You cosigned the loan and now your friend -- who was so grateful for your help -- has missed a payment. Or four. The creditor who loaned your friend the money is after you for the payments. And the creditor has every right. When you signed the loan documents, you promised to pay for the car if your friend didn't. Now you must pay or risk damaging your credit. But unless your name is on the car title, you can't take the vehicle, even if you are making payments.
Co-signing
Never cosign a loan unless you can afford the financial burden, says the Federal Trade Commission. The reason is because cosigners often wind up making the payments. Check your budget and see if the payments are within reach. If they aren't, don't cosign the loan, no matter how fond you are of your friend or relative.
Protect Yourself
If you're still willing to cosign a vehicle loan, have the borrower agree to add your name to the vehicle title. In this case, if he defaults on the loan and you wind up having to pay, there won't be a legal hassle about taking the car as your own. You should also stay on top of his paying status. Keep in touch with the financial institution each month to make sure the account is up-to-date and your credit is out of harm's way.
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