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What effect does co-signing on an auto loan impacts insurance Financing a Car With Co-Signers in this series Financing a Car with Co-Signer
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3 minutes read. Published September 21, 2022
Authored by Kellye Guinan Written by Personal and business finance contributor
Kellye Guinan is a freelance editor and writer with more than 5 years experience working in the field of personal financial matters. She is also a full-time librarian at the local library, where she assists people in her community get information on financial literacy, in addition to other topics.
Editor: Rhys Subitch Edited by Auto loans editor
Rhys has been editing and writing for Bankrate from late 2021. They are passionate about helping readers gain the confidence to control their finances by providing precise, well-researched and well-read information that breaks down otherwise complex subjects into digestible pieces.
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If someone in your family or a friend requires assistance in securing an loan to purchase a vehicle, you may be asked to co-sign the loan. While you’ll be accountable for the loan, agreeing to co-sign it will not impact the auto insurance policy you have or the rates you pay. Still, there may be some modifications to your insurance policy to be aware of prior to signing co-signers. Co-signing an auto loan is unlikely to affect the insurance coverage of someone who is buying an automobile isn’t something to be done lightly. However, it is unlikely that co-signing a loan could affect your insurance coverage for autos or the premiums you pay for coverage. If you don’t plan to drive the car you co-sign for, there should be no changes to your . “Co-signing the car loan is not likely to affect the cost of your insurance except, of course, you decide to add the co-signed car to your insurance policy then the premium would increase to reflect the added vehicle,” says Douglas Heller director of insurance at the Consumer Federation of America and an internationally recognized expert in insurance. So while there may some consequences for the co-signer if who you are co-signing for is unable to pay, your insurance should generally not be affected. Exceptions to the rule There are a few specific exemptions from this policy. If you are living with the primary borrower on the loan and are already on the same insurance the policy of yours is affected. As Heller states the policy’s premium will increase to reflect the additional vehicle. However, even if you drive the vehicle frequently could require you to add it to your insurance policy, which will increase the cost. Co-signers usually aren’t held responsible for accidents If the vehicle is in a collision or an accident in general, you’re not held accountable as a cosigner. “Co-signing for a car loan does not make you responsible for the primary borrower’s bad driving, drunken driving or driving without insurance,” states Steve Sexton, a financial advisor and the CEO of Sexton Advisory Group. But the limitations of your responsibility are altered when your name appears on the title of the car as a co-owner, which is the situation when you are a full co-applicant of the loan as opposed to merely as a co-signer. In this scenario, you may be liable for the damages caused by an accident if you are the owner of the car you share ownership with is found to be the party responsible or the one who caused the collision. If the accident leads to a lawsuit, you could also be potentially liable. However, even if the co-owner isn’t blamed for the incident however, your insurance premiums may increase. Being a co-signer vs. becoming a co-owner co-signer has only responsibility for the loan. The lender will contact you if you are in arrears or the primary borrower defaults. Since a co-signer essentially acts as a guarantor for the primary borrower, you are required to pay the loan if the primary borrower isn’t able to pay. However, it has no impact on your insurance. You’re only a co-owner of the car if your name is listed on the title of the car. Co-owners share an equal interest in the car and are equally responsible for keeping the loan payments current in the event that they take out a loan is used to purchase the car. That means a co-owner will be required to include the vehicle on their insurance policy, regardless of whether it is frequently driven or not. Ultimately, that means an increase in your insurance cost. If you are a co-signer, then you don’t have legal ownership rights to the automobile, and your name will not appear on the car’s title. But not all lender offers a co-signing option. Certain lenders may only permit co-signing on a joint application, which could put you both in the risk of the loan and the car. This means that your insurance company needs to be notified — as you’ll be listed in the title of the carand your insurance will be affected. The bottom line: Co-signing a car loan for a friend or loved one can be beneficial for the principal buyer. Although there are some risks to your credit when you co-sign for co-signer, your vehicle insurance policy should remain the same. Before you make this move contact your insurance provider to see if your insurance policy is affected.
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Written by Business and personal finance contributor
Kellye Guinan is a freelance editor and writer with over five years of experience in personal finances. She is also a full-time worker at her local library where she assists the community gain access to information on financial literacy, among other topics.
Editor: Rhys Subitch Edited by Auto loans editor
Rhys has been writing and editing for Bankrate since the end of 2021. They are committed to helping readers feel confident to manage their finances with clear, well-researched facts that break down complicated topics into bite-sized pieces.
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