Co-signing means you are responsible for covering payments if the main borrower cannot, but you do not have any legal rights to the car. Co-owning means both parties have equal ownership and financial responsibility for the car.
What is a Co-Signer? 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.
Co-signers are only there to show lenders that you have a safety net if you're unable to pay back the loan. You are still the one making the car payments, which means you will be the one building credit.
A co-signer also is someone who signs a loan or lease agreement alongside the primary borrower, but this person doesn't have any ownership rights to the vehicle, whereas a co-buyer is a joint owner of the vehicle.
Usually, when you cosign a car loan, you agree to be responsible for the debt if the primary debtor doesn't make payments or otherwise defaults on the loan. If the primary debtor defaults on the loan, then the creditor has the right to repossess the car and sell it.
If you want to sell the car by yourself, you may not be able to – you're likely to need your co-borrower to complete the sale. Both of your names are on the title, which can make selling the vehicle complicated. You're also likely to need your co-borrower's permission to transfer ownership legitimately.
Co-signers guarantee the loan, meaning they'll take over payments if you are unable to make them. They have no ownership interest in the property and can't decide to sell the property if they don't pay the loan.
Removing a co-signer from a car loan requires the loan to be paid off. If there's a balance remaining, that amount must be refinanced. The primary borrower could possibly qualify alone, or a new co-signer may be needed.
Co-signing a loan doesn't give you partial ownership of the property the funds are paying for — such as a vehicle or boat.
You can remove the co-signer by refinancing your auto loan, receiving a co-signer release or paying off the loan. Before removing the co-signer, ensure your credit score is high enough to receive the same or comparable rate if you refinance.
As a cosigner on an auto loan, your credit suffers if the vehicle is repossessed. You may also be responsible for paying more on the loan even after repossession. You have options for avoiding repossession, including working with the lender to come up with a payment plan or being removed from the loan.
Although liable for payments if you default, the cosigner doesn't share vehicle ownership and won't be on the car title. They also generally don't make the regular monthly payments.
Being removed as a cosigner from a loan could potentially hurt your credit scores. How much your scores are impacted depends on the details of your credit profile.
For married couples the rule of thumb is for each spouse to individually own the car they drive. The reason for this is to limit liability in the event of an accident. Liability is assessed on the owner of the vehicle and the person driving at the time of the accident.
Request release from a co-signed loan
Co-signers can make a written request to the lender to be released from a loan. In certain cases, like some student loans, there may be a provision that allows a co-signer to take their name off a loan.
A cosigner's sole responsibility is ensuring a complete loan repayment. A co-borrower ensures repayment but also helps pay the loan alongside the borrower and possesses property ownership rights. As a cosigner, you don't have property rights. However, you also forgo monthly payment responsibilities.
Lenders may look at the credit score of both you and your co-signer. So, a co-signer with good credit — a score above 660 — may result in lower rates. The average auto loan rate for subprime borrowers on a new car is 12.28 percent.
Remember, the primary borrower legally owns the vehicle, so an auto loan co-signer cannot take over without the consent of all parties and a refinance loan.
So in other words, the law would allow you to repossess the vehicle, but since it's co-owned, you can't keep it from the co-owner. Also, you can't sell it without their consent, so consider one of those options.
A cosigner on a loan is legally responsible for the debt if the primary borrower defaults. Cosigning a loan will show up on your credit report and can impact your credit score if the primary borrower pays late or defaults. Cosigners may sign for student loans, personal loans, credit cards, and even mortgages.
In general, if someone takes or controls your property without your permission, it could potentially be considered theft. Here if you contacted the police department they would investigate whether it is theft and charge him with a crime if they believe one has occurred.
While you don't necessarily have the same rights to the vehicle as the primary borrower, you – as the co-signer – are equally responsible for ensuring the loan is paid back. If the primary borrower doesn't make their monthly loan payment, you will be asked to make the payment.
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.