What Are the Rights of a Co-Signer on an Auto Loan?

The co-signer on a car loan shares an obligation with the primary borrower to repay the loan. In most instances a co-signer has no ownership rights to the vehicle. Therefore, if you are thinking of co-signing on a car loan you should first add your name to the title of the vehicle being financed.

Onwer Versus Signer

When you take out a secured loan such as a vehicle loan or a home loan, you must sign the contract both as an owner and as a borrower. As an owner you sign your consent for the lender to place a lien on your property. In your capacity as the borrower you agree to repay the loan. Not all of the property owners have to sign the loan as borrowers, and not all of the borrowers have to have an ownership stake in the collateral that secures the loan.

Title

If you feel uncomfortable about agreeing to sign for a loan against a car that you do not own, you must go with the owner of the car to the Department of Motor Vehicles and ask to add you as an owner of the vehicle. The DMV transfers ownership of the car from the current owner to the current owner and you. You now have an equal ownership stake in the car, and depending on your state's laws, this may mean that you can assume full control of the car if the other owner refuses to make loan payments.

Credit

People with poor credit are often unable to obtain car loans but they can get around this issue by asking someone with good credit to co-sign on their loan applications. However, once you sign on a loan, that loan account will appear on your credit report. This means that when you apply for future credit, lenders will assume that you are already making this loan payment and may not agree to provide you with any more credit unless you have a very high income level. Taking on the extra debt also increases your overall debt level and causes a drop in your credit score.

Repossession

If you co-sign on a loan for a car that you do not own, the bank can repossess that car if you and the car's owner fail to make the monthly loan payments. However, although the lender cannot repossess your own car, the lender can report the missed loan payments to the credit bureaus, and a record of these missed payments and the repossession will remain on your credit report for seven years. A low credit score can make it hard for your to obtain future credit and may even prevent you from landing a job in some industries.