Responsibility for payments: If the borrower defaults, the co-signer is responsible for all loan repayments. No legal claim: The co-signer is not on the title and has no legal claim to the car.
The answer is no, the cosigner has no legal right to take possession of the car. As a cosigner, you don't have legal ownership rights to the vehicle. In other words, a cosigner is on the vehicle's note (making them liable for the payments) but not the car title (which indicates ownership).
Similar to a home loan, you can be a cosigner for an auto loan. However, being a cosigner doesn't give you rights to the car that loan will purchase. A cosigner doesn't have any legal rights to the vehicle, so they can't take the car from its rightful owner, the primary borrower.
Unfortunately, since you have no legal rights to the vehicle, the primary borrower has to take the initiative to remove someone's name from the contract. Cosigners can't take possession of the vehicle they cosign for or remove the primary borrower from the loan since their name isn't on the vehicle's title.
A co-signer applies for the home loan right along with you. However, they are not on the title of the home. The co-signers name is only on the loan, meaning that while they are financially responsible for paying back the mortgage, they do not have ownership of the property.
Risks of co-signing on a car loan
Responsibility for payments: If the borrower defaults, the co-signer is responsible for all loan repayments. No legal claim: The co-signer is not on the title and has no legal claim to the car.
The quick answer is yes, but it's not as easy as you might think. "Lenders are generally averse to removing a co-signer," says Dean Kaplan, president of The Kaplan Group, a commercial debt collection agency. That's because by removing your name from the loan, the lender's risk goes up.
A co-signer has no ownership rights to the home, car, or other financed property. Co-signers take on a lot of risk when they agree to guarantee a loan.
Cosigner Release: Review your lease and see if there's a co-signer release clause. If there is and you fit the requirements, then contact your lender to start the release process. Sell the Car and Pay Off Your Loan: Sell your car and pay off the entire loan.
You can often remove a cosigner at any point during the loan period. Your loan paperwork might dictate specific terms, though. For example, some lenders require 24 months of on-time payments from the primary borrower before they'll consider releasing the cosigner.
The Co-signer Will Also be in Default
Once the vehicle is sold at auction, the lender can pursue both you and your co-signor for the deficiency debt – the difference between what you owed on the vehicle less the auction sale price plus any cost associated with the sale, interest and late charges, etc.
The lender may take legal action against you, pursue you through debt collection agencies, or sell the debt to a “debt buyer” to try to collect the money that is owed on the loan if the borrower does not pay or defaults on his or her repayment obligations.
You may be wondering if you can go about removing a cosigner from a car loan, and the answer is yes, you can. Often, you can simply contact your lender to get a cosigner released, but sometimes it can be more complicated.
Generally, lenders will consider the credit score of all applicants applying for a loan. Different lenders use different methods for assessing the creditworthiness of borrowers.
If you and your significant other purchased the car together and both of your names are on the title (and on the lease), you may need to sell the car or have one owner buy out the other's share. Otherwise, you still legally share ownership of the car and must work together on splitting its use.
Normally, a cosigner will have to stay on the mortgage for a minimum of one year. From my experience, normally a cosigner will stay on a mortgage for several years. When the borrower is ready to have the cosigner removed, they contact the lender to then re-qualify without the cosigner.
The bottom line. Switching or removing a co-signer on a car loan is not as simple or as straightforward as it sounds. Often, you will need to refinance your auto loan, pay it off altogether or go through the process of completing a co-signer release — if the lender even offers this option.
Cosigning for someone doesn't mean that you give away your legal rights, so you can sue the borrower to recover the money you spent to pay their loan.
THE BANK AND THE COURTS DO NOT CARE. All they care about is that YOU signed the loan, so as far as they are concerned YOU owe the money and you owe ALL of the money to the bank, and the only way to change that is to pay the money back. The buyer can get another cosigner or you can sell the car to pay off the loan.
Having a co-signer on the loan will help the primary borrower build their credit score (as long as they continue to make on-time payments). It could also help the co-signer build their credit score and credit history, if the primary borrower makes on-time payments throughout the course of the loan.
If you're the primary borrower on a debt, your cosigner can take you to court for: Recovery of money paid: they can sue you to recover the money they've paid towards the loan. Fraud: they can sue you if you signed their name to the loan without their permission.
A co-borrower has more responsibility (and ownership) than a co-signer because a co-borrower's name is on the loan, and they are expected to make payments. A co-signer only backs your loan and will not need to make payments unless you are unable to.
Possible disadvantages of cosigning a loan
If the borrower is responsible in their repayment habits, there should be no negative impact on you, but if you find that is not the case, you could be seriously affected: It could limit your borrowing power.
Cosigning an account for somebody else can positively or negatively affect your credit depending on how the primary account holder manages their obligation. As with accounts you open for yourself, consistent, on-time payments may help your credit.