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Co-signing an auto loan impacts insurance financing a car with Co-Signers in this series Financing a Car With Co-Signers
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3 minutes read. published on September 21, 2022.
Writer: Kellye Guinan. Written by Personal and Business Finance Contributor
Kellye Guinan is a freelance editor and writer with over 5 years experience working in the field of personal financial matters. She’s also a full-time employee at her local library, where she assists the community gain access to information on financial literacy, as well as other topics.
Edited by Rhys Subitch Edited by Auto loans editor
Rhys has been writing and editing for Bankrate since late 2021. They are committed to helping readers gain the confidence to take control of their finances through providing clear, well-researched information that break down complex topics into manageable bites.
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When a family member or friend requires assistance in securing the loan to buy a car, you may be required to sign the loan. While you’ll be responsible for the loan however, a co-signing and not be a factor in your own auto insurance policy or the rates you pay. There may be some changes to your insurance to keep in mind before accepting co-signer. Co-signing a car loan probably won’t impact your insurance . Helping someone buy an automobile isn’t an obligation to take lightly. However, it is unlikely that co-signing the loan could affect your auto insurance policy or the premiums you pay for coverage. If you aren’t planning to drive the car you are co-signing for, there should be no modifications to your . «Co-signing the vehicle loan is not likely to affect your insurance premiums, unless, of course you decide to add the vehicle you co-signed to your insurance policy then the premium would increase to reflect the added vehicle,» says Douglas Heller, director of insurance for the Consumer Federation of America and an internationally-recognized expert on insurance. So while there may be consequences if the person who you are co-signing on behalf fails to make payments the insurance will generally remain unaffected. Some exceptions to the rule are a few specific exemptions from this policy. If you reside with the primary borrower of the loan and you are already covered by the same insurance, your policy will be affected. As Heller states, the policy premium will go up in order to reflect the addition of the vehicle. However, even if you drive the vehicle regularly could mean you need to add it to your insurance policy, which will raise your cost. Co-signers are generally not held accountable for accidents If the vehicle is in the middle of a collision or accident and you’re not held accountable as a cosigner. «Co-signing for an auto loan isn’t a reason to be liable for the borrower’s poor driving, DUI or even driving without insurance,» declares Steve Sexton, a financial advisor and the CEO of Sexton Advisory Group. However, the boundaries of your responsibility are altered in the event that your name is listed on the vehicle’s title as a co-owner, which would be the scenario when you are a full co-applicant on the loan and not just co-signer. In this case you may be responsible for damages in an accident, if you are the owner of the car you co-own is determined to be the one at fault or who caused the collision. If the accident leads to a lawsuit, you may also be potentially liable. But even if your co-owner isn’t found at fault in the accident, your premiums may still increase. Being a co-signer vs. having a share in the ownership A co-signer is only responsible on behalf of the loan. The lender will contact you if there are late payments or the primary borrower defaults. Because a co-signer acts as a guarantor for the principal borrower, you must make payments on the loan if the primary borrower is not able to pay. But that has no impact on your insurance. You are only a co-owner of a car if your name is listed on the title of the car. Co-owners share an equal interest in the car and are equally accountable for keeping loan payments current if the loan was used for the purchase of the vehicle. That means a co-owner will also need to list the vehicle on their insurance coverage, regardless of whether it is driven frequently or not. In the end, this means an increase in your insurance cost. As a co-signer, you don’t have legal ownership rights to the automobile, and your name won’t appear on the car’s title. However, not every lender allows co-signing. Some lenders will only accept the joint application. This puts you at stake for the loan and the car. This means that your insurance company needs to be notified — since you will be on the title of the vehicleand your insurance will be affected. The bottom line: Co-signing for a car loan for a friend or loved one could be an enormous benefit to the buyer who is the primary. Although there are some risks to your credit as a co-signer, your car insurance policy should remain the same. But before taking this step make sure you contact your insurance company to see if your insurance policy is affected.
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Written by a Personal and Business finance contributor
Kellye Guinan is a freelance editor and writer with over five years of experience in personal finances. She’s also a full-time worker at her local library where she assists her community access information about financial literacy, as well as other topics.
The edit was done by Rhys Subitch Edited by Auto loans editor
Rhys has been writing and editing for Bankrate from late 2021. They are dedicated to helping their readers to control their finances through providing concise, well-studied facts that break down otherwise complicated subjects into digestible pieces.
Auto loans editor
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