A change of terminology when signing a car loan with another person can mean the difference between the ability to repossess it or having no recourse if the other party skips town. Cosigning is one way to help another person get a car, but also the most risky. Instead, the co-signer would fare better signing on as a joint applicant.
Ownership
If you cosign on an auto loan, only the primary borrower retains ownership of the car. As a cosigner, you only promise to repay the lender if the original applicant cannot meet his debt obligation. Even if the original borrower blatantly refuses to repay the loan and you have to take over payments, only the original owner has the title to the car and you cannot repossess it nor receive insurance payments in case the owner totals the car in an accident.
Joint Applicant
Although the terms "cosigner" and "joint applicant" may sound similar, they have very different legal consequences. If you want to help someone obtain a car loan, but take the vehicle back if he defaults on payments, you want to become a joint applicant. A joint applicant has the duty to repay the entire loan but also has his name on the deed to the car, according to GoBankingRates.com
Considerations
In general, becoming a cosigner or a joint applicant is a poor decision unless you absolutely trust the primary borrower to repay the loan, according to the Federal Trade Commission. Lenders pursue cosigners most of the time when the original borrower defaults. If you, as the cosigner, cannot pay, the lender can sue you for a judgment, which may result in a lien on your assets or garnishment of your wages and bank accounts. Also, missed payments go on your credit history, which will quickly destroy your credit rating.
Tip
Whether you should cosign the loan or become a joint applicant depends on your prerogative. If you only want to help the individual obtain a loan, cosigning is the best way to go. If you want the option to repossess the car, become a joint applicant. Should you become a cosigner, demand the lender put in writing that it will notify you of missed payments on the loan and only agree to cosign the original balance on the loan, not late fees and penalties. After a few years of good payments, ask the original borrower to refinance the car loan to remove your name; he probably will have good enough credit to get a loan on his own at this time.
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