What Does a Co-Signer on a Car Loan Do?

A co-signer accepts financial responsibility for a loan.

A co-signer on a car loan is a person who helps another to buy a car. Co-signers of a car loan accept responsibility to pay off the loan if the buyer is unable or unwilling to do so.

Reasons for a Co-Signer

Many banks and other financial institutions require a co-signer for some purchasers. Most often this is due to the buyer not having an established credit history. Buyers needing a co-signer for a car loan do not necessarily have bad credit, however.

Risks for Co-Signers

The primary risk is the most obvious: that a co-signer will have to pay off the loan. Another risk that many co-signers overlook is the added debt on their credit report. The additional debt may make getting credit in the near future more difficult or more expensive for the co-signer.

Co-signing Alternatives

One alternative for a person considering co-signing on a car loan is to become a co-buyer. A co-buyer, unlike a co-signer, shares equal ownership in the car. The prospective co-signer might also offer to make a personal loan to the buyer to reduce the risk of damage to the co-signer's credit report.

References

• Illinois Legal Aid: If I Co-signed a Car Loan for My Son, Can I Take the Car If He Does Not Make His Payments?
• Bankrate: The Basics of Co-Signing a Loan