02:19
Faizan
Co-signing on a car loan is not without risks. If the borrower stops paying, the co-signer is on the hook for that paying back the loan. However, this is usually where the additional responsibility ends. If the borrower gets into an auto accident, he's the one who's financially on the hook if it was his fault. On the other hand, if the co-signer is also a co-owner of the vehicle, he shares this liability.
Case for a Co-Signer
When a buyer is in the market for a car, his credit history is one of the first things checked when he goes to make that purchase. If he lacks sufficient credit history or has a bad credit history, he might face a higher interest rate for any loan he secures than is usual, or the lender may decline him a car loan altogether. In either case, the car buyer may ask a parent or friend with good credit to sign as a co-signer for the auto loan. By doing so, the co-signer acts in many ways like a guarantor. If the lender is unable to collect payments from the original signer in the future, it may go after the co-signer for any money due. The loan payment history is also reported on the co-signer's credit report, just like it is on the borrower's report.
Co-Signer versus Co-Owner
Agreeing to be a co-signer on a car loan doesn't make the co-signer an owner of the vehicle. The two are separate and distinct responsibilities. Co-signers are responsible for payment on a car loan if the borrower fails to meet his payment obligations. However, a co-owner is someone who has ownership interest in a vehicle, which is typically reflected on the vehicle's title. A co-owner, regardless of whether he drives the vehicle, is responsible for such things as insuring the vehicle.
Liability for Auto Accidents
If a co-signed vehicle is involved in an auto accident, the co-signer is generally not liable for any damages to the other vehicle or injuries suffered by its driver or passengers. Typically, these costs are the responsibility of the borrower and covered by his insurance, provided he is determined to be the at-fault party. However, if the co-signer is also a co-owner of the vehicle, he could face liability for the accident, even if he wasn't involved in the accident. For example, if the borrower caused an accident that totaled another person's $50,000 vehicle and his insurance only covered $25,000, the driver of the totaled vehicle could sue the co-owner for the remaining $25,000.
Additional Considerations
Although a co-signer may not also be the co-owner of a vehicle, if it is damaged or totaled in an accident, payments on the car loan must continue until the loan is paid off. If the borrower stops making payments because he no longer has transportation to work, the co-signer must take over the payments or risk damage to his credit rating.
Case for a Co-SignerWhen a buyer is in the market for a car, his credit history is one of the first things checked when he goes to make that purchase. If he lacks sufficient credit history or has a bad credit history, he might face a higher interest rate for any loan he secures than is usual, or the lender may decline him a car loan altogether. In either case, the car buyer may ask a parent or friend with good credit to sign as a co-signer for the auto loan. By doing so, the co-signer acts in many ways like a guarantor. If the lender is unable to collect payments from the original signer in the future, it may go after the co-signer for any money due. The loan payment history is also reported on the co-signer's credit report, just like it is on the borrower's report.
Co-Signer versus Co-Owner
Agreeing to be a co-signer on a car loan doesn't make the co-signer an owner of the vehicle. The two are separate and distinct responsibilities. Co-signers are responsible for payment on a car loan if the borrower fails to meet his payment obligations. However, a co-owner is someone who has ownership interest in a vehicle, which is typically reflected on the vehicle's title. A co-owner, regardless of whether he drives the vehicle, is responsible for such things as insuring the vehicle.
Liability for Auto Accidents
If a co-signed vehicle is involved in an auto accident, the co-signer is generally not liable for any damages to the other vehicle or injuries suffered by its driver or passengers. Typically, these costs are the responsibility of the borrower and covered by his insurance, provided he is determined to be the at-fault party. However, if the co-signer is also a co-owner of the vehicle, he could face liability for the accident, even if he wasn't involved in the accident. For example, if the borrower caused an accident that totaled another person's $50,000 vehicle and his insurance only covered $25,000, the driver of the totaled vehicle could sue the co-owner for the remaining $25,000.
Additional Considerations
Although a co-signer may not also be the co-owner of a vehicle, if it is damaged or totaled in an accident, payments on the car loan must continue until the loan is paid off. If the borrower stops making payments because he no longer has transportation to work, the co-signer must take over the payments or risk damage to his credit rating.
Posted in: Driving Tips
