If you cosign a car loan, you are equally responsible for the loan as the person for whom you co-signed. Any late payments or repossession charges will show up on your credit report affecting your score and history. You are also liable for the vehicle loan if it goes into default or the lender repossesses the car.
Bank Contact
Banks have varying procedures when it comes to notifying a co-owner of late payments or default. Before non-payment becomes a problem, contact your lender and ensure that it contacts you if a payment is late. Some banks only contact the registered owner instead of notifying both parties. If you know your co-owner is not going to make his payment, call the bank immediately and make the payment yourself to protect your credit.
Late Payments
If the co-owner does not make a car payment, the bank reports the past due amount to the credit bureaus for both parties. When future lenders look at your credit, they will see the number of late car payments over the period of the loan. Lenders usually report late payments after 30 days, which may be enough time for you to make the payment yourself. Even if you are not the person driving the car, cosigning the loan made you equally responsible for payments.
Loan Default
If the co-owner stops making payments and avoids bank contact, the bank will repossess the vehicle. Banks differ in the time allowed before pursuing repossession. Check the details stated in your loan contract. If the bank does repossess the vehicle, you may have a small window of opportunity to get it back by paying the past due amount. Repossession significantly affects your credit rating, so avoid it all costs.
Repossession
Even if the lender repossessed the vehicle, you are still liable for any amount due to the bank after resale. The bank will likely notify you of any balance due after it sells the car and allow you to make payments toward the debt. If you do not pay, the bank can pursue the matter in court. The bank will likely obtain a judgment to garnish your wages. For these reasons, cosigning a car loan presents significant financial risk.
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