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4 min read. Published September 30 2022
Dan Miller Written Dan Miller Written by Points and Miles Expert Contributor Dan Miller is a former contributing writer for Bankrate. Dan covered loans, home equity, and the management of debt in his work. Edited by Rashawn Mitchner. Edited by the associate loans Editor Rashawn Mitchner is a former editor in charge at Bankrate. The Bankrate guarantee
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We receive compensation for the promotion of sponsored goods and, services, or by you clicking on specific links on our site. So, this compensation can affect the way, location and when products are displayed within the categories of listing and categories, unless it is prohibited by law. This is the case for our mortgage or home equity products, as well as other home lending products. Other factors, like our own rules for our website and whether or not a product is available within the area you reside in or is within your own personal credit score can also impact how and where products appear on this site. Although we try to offer the most diverse selection of products, Bankrate does not include details about every credit or financial product or service. Co-signing an auto loan for a friend or loved one is a serious financial choice. This means that you’re legally responsible for loan payments if the individual whom you’re cosigning for does not do so. In addition to putting your cash at risk by co-signing an auto loan and putting at risk your credit. If the loan ends up in default, or the vehicle is eventually seized and your credit is damaged, even if you have long-standing history of paying all of your obligations on time. What happens when you have auto repossession When the lease is signed or borrow money for the purchase of a vehicle, you don’t actually own the car. The lender keeps the title for the car until you meet your obligations and pay off the loan. As part of the papers that you signed as you left with your car, you agreed to give your lender permission to repossess the car if you cease paying the loan. Most lenders will only repossess cars in the last instance, in the event that you have stopped making payments and they believe there’s a slim chances that you’ll ever return to payments. Most lenders would prefer receiving payment instead of having to go through the hassle of taking the car back. If the lender does decide to repossess the car, it’s usually not required to give you any kind of notice. The lender could send a driver to take the car away, or it may hire a tow truck. If your vehicle has a remote start and you have a remote starter, the lender might also block your capability to start the vehicle. While laws vary by state the state, it is generally the case that a lender is typically permitted to enter private property to repossess a car. However, it’s usually not allowed to break into the garage or damage your property. What happens when a co-signer is unable to take possession of the vehicle? It’s important to be aware that trying to resolve a default on the loan yourself, also known as “taking matters to yourself,” is not considered a acceptable alternative to legal action in all states. It is a court law to discourage the kind of physical conflict that could occur when you attempt to repossess your friend’s car, so let the dealer or bank repossess it. How the credit of co-signers is affected by repossession co-signing a loan is legally responsible for the loan. When you co-signed the loan you have agreed with the lender that you’d make sure the payments got made even if the primary borrower didn’t make the payments. So, reposession or late payments will be reported in your credit reports, too. If you are the co-signer on the car you’re on the hook for this debt until it is paid in full. The credit rating of your, your cash reserves, and the relationship you have with your delinquent co-signer are in danger. If the situation is not good and you are not careful, all three factors could be affected. Here are some reasons to be cautious when signing to sign a co-signer. Be cautious about who and who you are co-signing for. It’s a good idea to co-sign only for people who are close friends or relatives that you can trust. It is ideal to choose those who are financially stable. To help protect yourself in the event of a crisis, you may think about establishing a separate contract between yourself and the principal borrower. This contract would set out your expectations and define each person’s obligations. Once this document is agreed to by both parties get it notarized. Rights as a co-signer a co-signer, you are legally responsible for the debt, but you are not legally responsible for the debt . You have no legal right to own the vehicle or other property. If the principal borrower is in arrears with their car payments You might think you are entitled to take possession of the vehicle yourself however you don’t. One option you might have to safeguard yourself while co-signing a loan is to keep one payment in advance. You can call the lender, find out what amount is in arrears (if any) and pay it, and then make a second payment. In the event that your co-signer is late on another payment the late payment are still counted towards the balance without hurting your credit score. Just keep in touch with the lender and make sure you are at least one month behind. A different option would be to request to be removed from the loan. The principal borrower must sign a cosigner release, as well as the lender will only give approval if the primary borrower shows that they can pay the loan on their own. Building credit following repossession the repossession appear on your credit report will make your credit score decrease and can negatively impact your ability to get or different types of loans. The repossession period is seven years long, so you want to do everything you can to ensure that the vehicle you co-signed for doesn’t end up being taken away. Based on your relationship with the primary borrower you may be able come to a settlement. You could try to demand that they hand over ownership of the car while you make the remaining payments. After the car has been fully paid you may be able to trade it in and get some of your cash. You may want to sue the primary borrower to recover some damages however if they fail in their obligation to repay the lender in full, it’s likely that they won’t pay. Even if you get a judgment against them, you’d need to be able to make it effective. It’s best not to let it reach that point. The bottom line Co-signing for an loan is an incredibly risky decision as it puts your credit on the line. If you are considering co-signing for an auto loan or other type of loan think about what you will do if the primary borrower defaults. Rather than co-signing, you might consider working with them to look for alternatives which don’t require co-signers. If you’ve co-signed an loan and the principal borrower is in arrears with payments There are several alternatives. It’s important to know that you don’t have the authority to seize the vehicle on your own. Instead, you’ll need to work out a solution with the primary borrower or continue making the payments towards the lender. Find out more about:
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The article was written by Points and Miles Expert Contributor Dan Miller is a former contributor for Bankrate. Dan was a frequent contributor to Bankrate’s coverage of loans, home equity and the management of debt in his writing. Written by Rashawn Mitchner Edited by Associate loans Editor Rashawn Mitchner, who was formerly an editor in the associate department at Bankrate.
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