Co-signer Rights for Car Loans
A car loan is typically a closed-end, fixed-interest loan. These loans vary in length but are often between 12 and 72 months, adjusted in 12-month increments. If a borrower's credit does not qualify him for the loan, a co-signer could sign on as another obligated debtor in order to get the loan. When it comes to co-signing loans, you should be very wary as these often turn into your loans--not the original borrower's.
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Before Co-signing
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Take special precaution to avoid co-signing at all costs. Most often, family members, friends and relatives co-sign on loans to help out a struggling person. There is a reason these folks need co-signers; they have bad credit. Before tying yourself to a bad debtor on a loan, talk through the repayment process with the original debtor. Also, you may want to get your own collateral as a co-signer--separate from the lender's lien on the car.
Co-Signers Have No Rights
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A co-signer has the responsibility to pay the loan if the original borrower defaults on the payments. It is unfair, but it is the purpose of the co-signer. The lender knows that a co-signer with solid credit will not want to damage his credit report by failing to cover the defaulted payments.
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Car Lien
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Some co-signers add their names to the title of the car being secured. However, if the car owner gets involved in an accident, the co-signer may become liable for any insurance charges. Similarly, if there are outstanding parking tickets tied to the vehicle, the co-signer would be responsible for these as well. However, if an original borrower defaults, the co-signer has a right to collect profit from the sale of the repossessed vehicle.
Benefits
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Co-signers can have the advantage of becoming a struggling family member's hero. Sometimes folks get into bad spots by no fault of their own: unemployment, medical emergency, disability. In these cases, co-signing a loan might be the humanitarian thing to do--especially if the borrower showed fiscal responsibility prior to the need for a co-signer.
Warning
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Do not be swayed by aggressive lenders. Sometimes lenders, in an attempt to make loans, will try to convince family members to sign onto loans for under-qualified borrowers. The decision to co-sign is yours, and it is your responsibility to make sure the original borrower will make the payments on the loan.
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