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4 min read. Published September 30 2022
Written by Dan Miller Written by Points and Miles Expert Contributor Dan Miller is a former contributing writer for Bankrate. Dan was a frequent contributor to loans as well as home equity and debt management in his work. Edited by Rashawn Mitchner. Edited by Associate loans Editor Rashawn Mitchner, who was a former associate editor at Bankrate. The Bankrate promise
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We are compensated in exchange for the placement of sponsored products and services, or through you clicking certain hyperlinks on our site. This compensation could influence the manner, place and in what order items are displayed within the categories of listing and categories, unless it is prohibited by law for our mortgage, home equity and other home lending products. Other factors, such as our own website rules and whether or not a product is available in your area or at your own personal credit score may also influence the manner in which products appear on this site. We strive to provide an array of offers, Bankrate does not include the details of every financial or credit products or services. Co-signing a car loan for the benefit of a loved one or friend is a serious financial choice. It means you are legally responsible for loan payments if the person who you co-sign for fails to make the payments. As well as placing your cash on the line when cosigning an auto loan, you’re also risking your credit. If the loan ends up in default or the car is eventually seized, your credit will be affected, even if you’ve had an extensive history of paying all of your bills on time. What happens when you have auto repossession When you contract a lease or take out a loan for an automobile but you don’t own the vehicle. The lender retains the title to the car until you have fulfilled your obligations and pay off the loan. As part of the documents that you signed when you left with your car, you agreed to give to the lender an option to repossess your vehicle if you stop making payments. The lender will typically only take possession of the vehicle as a last resort, in the event that you have stopped making payments and they think there’s little to no chance you’ll resume payments. Most lenders would prefer receiving payment instead of having to go with the stress of taking the car back. If a lender does decide to repossess the car, it’s usually not required to issue any kind of notice. The lender might send a chauffeur to take the car away, or it may hire an tow vehicle. 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, a lender is generally permitted to enter private property to take possession of the vehicle. But, it’s not allowed to break into the garage or cause damage to the property. Can a co-signer repossess a car? It is important to know that making efforts to cure any defaults on an loan yourself, aka “taking things in your own hands” is not considered a legitimate alternative to legal action in most states. The courts have this law to prevent the type of physical confrontations that can occur in the event that you try to seize your friend’s car, so let the dealer or bank repossess it. How the credit of co-signers is affected by repossession Being co-signing a loan makes you legally responsible for the loan. In co-signing the loan and committing to the lender that you would ensure that the payments were made even if the primary borrower did not pay the payments. So, the late payment or repossession could show up upon your credit file too. Liabilities as a co-signer As the co-signer of the vehicle you’re responsible for the debt until it is fully paid. Your credit score, your available cash , and your relationship with your delinquent co-signer are in danger. If the situation is not good the three issues could be affected. There are several reasons to be extremely cautious when agreeing to sign a co-signer. about who and what you sign to. It is a good idea to only co-sign for individuals who are close to you or relatives that you are confident. Ideally, these are who have a stable financial situation. To help protect yourself in these situations, you could be thinking about creating an individual contract between you and the principal borrower. The contract should outline your expectations and the respective obligations. After the document has been executed by both parties, make sure it is notarized. Rights as a cosigner as a co-signer you are legally responsible for the debt, however, it is not legally binding on you are not legally responsible for the debt . You do not have a legal right to the ownership of the car or any other asset. If the primary borrower falls in arrears with their car payments and you think you have the right to seize the car on your own however you don’t. One option you might have to protect yourself when co-signing a loan is to keep one step ahead. You can call the lender, find out what amount is due (if any) and then pay it and then make one additional payment. If your co-signer is late on another payment, any late payments are still counted towards the balance and not affect your credit. You just need to keep contact with the lender and always stay one month ahead. A different option would be to request to be removed from the loan. The primary borrower has to sign a cosigner release, in addition, the lender will only approve when the primary borrower proves that they can pay the loan on their own. Credit repair after repossession the repossession appear on your credit file will make your credit score decrease and can affect 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 signed for doesn’t get taken away. Depending on your relationship with the principal borrower, you might be able to work out a deal. You could try to demand that they turn over ownership of the car while you make the remaining payments. When the car is completely paid for you may be able to trade it in and get some of the money. You might try to sue the primary borrower to get some compensation If they failed to pay the lender and then it’s unlikely they would pay you. Even if you win a judgment against them, you’ll need to know how to make it effective. It’s better not to let it get to that point. The bottom line Co-signing for the loan is a very risky option and puts your credit at risk. If you are considering co-signing for an auto loan or other type of loan, consider what you’ll do if the primary borrower fails to pay. Rather than co-signing, you might look into working with them find alternatives which don’t require co-signers. If you’ve co-signed for a loan and the borrower isn’t making payments there are a number of alternatives. It’s important to know that you do not have the right to repossess the vehicle yourself. Instead, you’ll need to either work something out with the borrower who is the primary lender or continue to make payments towards the lender. Learn more:
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The article was written by Points and Miles Expert Contributor Dan Miller is a former contributor to Bankrate. Dan was a frequent contributor to Bankrate’s coverage of loans, home equity , and managing debts in his writing. The edit was done by Rashawn Mitchner. Edited by Associate loans Editor Rashawn Mitchner who was an associate editor at Bankrate.
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