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How to protect yourself when co-signing a car loan Part Of Financing a Car With a Co-Signer In this series Financing a Car With a Co-Signer Advertiser Disclosure Advertiser Disclosure We are an independent, advertising-supported comparison service. Our goal is to help you make smarter financial decisions by providing you with interactive financial calculators and tools, publishing original and objective content. This allows you to conduct research and compare information for free — so that you can make informed financial decisions. Bankrate has agreements with issuers including, but not limited to, American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Make Money The deals that are displayed on this site come from companies who pay us. This compensation could affect how and where products appear on the site, such as such things as the order in which they be listed within the categories of listing, except where prohibited by law for our loan products, such as mortgages and home equity, and other home loan products. This compensation, however, does affect the information we publish, or the reviews that you see on this site. We do not include the vast array of companies or financial offerings that could be open to you. Oliver Rossi/Getty Images

2 min read Published 12 October 2022

Written by Rebecca Betterton Written by Auto Loans Reporter Rebecca Betterton is the auto loans reporter for Bankrate. She specializes in assisting readers in navigating the ways and pitfalls of taking out loans to purchase cars. Written by Rhys Subitch Edited by Auto loans editor Rhys has been writing and editing for Bankrate from late 2021. They are passionate about helping readers gain the confidence to manage their finances with clear, well-researched information that is broken down into complex topics into manageable bites. The Bankrate promises

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Therefore, this compensation may influence the manner, place and when products appear within listing categories in the event that they are not permitted by law for our mortgage or home equity, and other home lending products. Other elements, like our own proprietary website rules and whether a product is available in your region or within your personal credit score may also influence the manner in which products appear on this website. Although we try to offer an array of offers, Bankrate does not include details about each credit or financial item or product. Co-signing as a customer could allow the vehicle to be owned for a family or friend member who may not qualify for financing without your help. But co-signing comes with risks, as you share equal legal responsibility for the loan, missed payments or default could affect your finances. If the car owner is accountable, co-signing may actually improve your credit. Five ways to protect yourself as a co-signer these factors to safeguard your financial security should you decide to be co-signer in the future for a . 1. Co-sign only for your closest friends or family members The biggest risk that comes with being co-signer for a loan co-signer can cause damage to your credit. It is best to help a family or friend member whom you trustthat is, someone who has a regular income and a stable financial situation. You must be sure that the principal borrower is able to repay but they were not eligible because of their insufficient credit history or financial stability. 2. Make sure your name is on the title of the vehicle. Co-signers do not hold ownership to the car. This means that the way you are named to the loan agreement is important. If you are not named to the title of the vehicle, you may not be able to claim legal rights to the vehicle, but you could be responsible for future installments. Confirm that the title states that you are the primary owner as well as yourself. The vehicle can’t be transferred without two parties having their signatures. 3. Create a contract Although you’ll both sign off on the loan in its entirety and the contract itself, having a separate one detailing your expectations for the primary borrower is an additional layer of security and serves as a reminder of the agreement’s importance. This contract need not be complex. A promissory note describing the costs, obligations and the consequences of default to both sides. Once you have both agreed, bring the document to a notary in order to have it finalized. 4. Monitor monthly payments One method to increase confidence in the ability of the borrower of paying is to track the monthly payment schedule. It can be as easy as setting a reminder in the calendar to keep track of their spending. While it may feel awkward, remember that your credit is at risk. Reach out and start the conversation to keep track of your friend or family member without micromanaging the loan. 5. Make sure you have enough money to pay the loan. In the event that all else fails it is essential to ensure that you are able to cover the cost of the loan. If you’re not able to pay back the lender and your credit score is in danger — as well as the fact that you may be in danger of default and possibly legal action. The borrower who is the primary holder has the majority of the responsibility however you’re in the middle of the loan as a co-signer. What happens when you co-sign an auto loan affects your credit The risk of co-signing for a car loan aren’t difficult but could be grave. If the person you co-sign for doesn’t pay, your could take a big hit and you’ll be on the responsible for the loan. There are also benefits for your credit score. Credit mix: Depending on the current credit accounts, adding the car loan in your credit score can increase what’s known as your credit mix. Your credit mix is 10% of your FICO credit score. Pay history: While your score may decrease when the primary borrower fails to make timely payments It is also possible to gain — though on an insignificant scale- from them making consistent timely payments. In the end, acting as a co-signer is a big financial choice that could lead to interpersonal or financial difficulties. But for many, it is the difference between having a vehicle or not. If you choose to co-sign the loan ensure you are protected and make certain that you have the funds to pay the loan in case the primary borrower defaults. Find out more

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The article was written by Auto Loans Reporter Rebecca Betterton is the auto loans reporter for Bankrate. She has a specialization in helping readers with the ins and outs of securely taking out loans to purchase a car. The article was edited by Rhys Subitch Edited by Auto loans editor Rhys has been writing and editing for Bankrate since the end of 2021. They are passionate about helping readers gain the confidence to manage their finances by providing precise, well-researched and well-sourced details that cut complex topics into manageable bites.

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