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What happens to a co-signer in the event of a vehicle being repossessed? Advertiser Disclosure Advertiser Disclosure We are an independent, advertising-supported comparison service. Our goal is to help you make smarter financial decisions by offering interactive financial calculators and tools as well as publishing relevant and impartial content. We also allow users to conduct research and compare data for free – so that you can make informed financial decisions. Bankrate has partnerships with issuers including, but not limited to, American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Make money The products that appear on this website are provided by companies who pay us. This compensation may impact how and where products appear on this website, for example for instance, the order in which they appear in the listing categories in the event that they are not permitted by law. This applies to our loan products, such as mortgages and home equity, and other home lending products. But this compensation does affect the content we publish or the reviews that you read on this site. We do not cover the vast array of companies or financial deals that could be accessible to you. SHARE: prostooleh/Getty Images

4 min read. Published September 30, 2022

Authored 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, home equity, and debt management in his work. Written by Rashawn Mitchner. Edited and written by Associate loans editor Rashawn Mitchner who was an associate editor at Bankrate. The Bankrate guarantee

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Therefore, this compensation may impact how, where and in what order items are listed, except where prohibited by law for our mortgage, home equity and other home loan products. Other factors, like our own website rules and whether or not a product is offered in the area you reside in or is within your personal credit score may also influence the way and place products are listed on this site. While we strive to provide an array of offers, Bankrate does not include the details of each credit or financial products or services. Co-signing a car loan for the benefit of a loved one or friend is a significant financial decision. It implies that you’re legally responsible for loan payments if the individual who you co-sign for fails to pay the loan. As well as placing your cash at risk by co-signing an auto loan, you’re also risking your credit. If the loan is in default, or the vehicle is ultimately repossessed, your credit will be damaged, even if you have long-standing track record of paying all your bills punctually. How auto repossession works When you contract a lease or take out a loan for a car, you don’t actually own the vehicle. The lender retains the title of the car until you meet the obligations you have made and repay the loan. As part of the papers that you signed as you drove away in the car, you gave to the lender permission to seize your vehicle if you stop paying the loan. Most lenders will only repossess a car in the last instance, when you’ve stopped making payments and they believe there’s a slim to no chance you’ll resume payments. The majority of lenders prefer to receive payment instead of having to go through the hassle of taking the vehicle back. If a lender does decide to repossess your car, it’s generally not required to issue any sort of notice. The lender could send a driver to take the car away or may employ the tow-truck. If your car has remote start it is possible that the lender may also disable your ability to start the car. While laws vary by state the state, a lender is generally permitted to enter private property to repossess a car. However, it’s generally not permitted to enter a garage or otherwise damage your property. What happens when a co-signer is unable to take possession of the car? It’s crucial to understand that making efforts to cure a default on a loan yourself, aka “taking matters in your own hands” isn’t considered to be a legitimate substitute for legal action in the majority of states. The courts have this rule to avoid the kind of physical confrontation that’s possible in the event that you try to seize your friend’s car, so you should let the lender or the bank repossess the vehicle. How the credit of co-signers is affected by repossession a co-signer makes you legally responsible for the loan. When you co-signed the loan and committing to the lender that you would make sure the payments got completed even if the primary borrower didn’t make the payments. This means that the late payment or repossession could be reported upon your credit file as well. Co-signer’s liability: As the co-signer of the vehicle, you are in the position of being responsible for the debt until it’s completely paid. The credit rating of your, your available cash , and your relationship with the co-signer you have a problem with are in danger. If things go wrong and you are not careful, all three factors could be affected. Here are some reasons to be cautious when signing to co-sign. Be cautious about who and who you are co-signing for. It’s a good idea to only sign for those who are close friends or relatives that you can trust. Ideally, these are who are financially stable. To protect yourself from the event of a crisis, you may be thinking about creating an independent contract between you and the principal borrower. The contract should define your expectations as well as each person’s obligations. When the contract is executed by both parties, make sure it is notarized. Rights as a co-signer as a co-signer you are legally accountable for the debt, however, it is not legally binding on you . There is no legal claim to the ownership of the vehicle or other property. If the principal borrower is behind on their car payments, you may think that you are entitled to seize the car on your own, but you do not. One way to ensure your safety when co-signing a loan is to make sure you are one step ahead. You can call the lender to find out the amount is in arrears (if there is any) and pay it and then make one additional payment. If the co-signer makes a second late payment, any late payments will still count toward the balance without hurting your credit. You just need to keep in contact with your lender and always stay 1 month in advance. The other option is to ask to be removed from the loan. The primary borrower has to accept the release of cosigners, as well as the lender will only approve in the event that the primary borrower can prove that they are able to repay the loan independently. Credit repair after repossession an unpaid repossession on your credit report can make your credit score drop and affect your ability to get or other types of loans. Repossessions last for seven years are a thing of the past, so it is important to take every step to ensure that the vehicle you co-signed for doesn’t get taken away. Depending on your relationship with the primary borrower, you may be able come to a settlement. You could ask that they surrender the ownership of the vehicle in exchange for the rest of your payments. Once the car is paid in full you may be able to trade it in and get some of your cash. You might try to sue the borrower who was your primary lender to recover some damages If they failed in their obligation to repay the lender and then it’s likely that they won’t pay. Even if you win a judgment against them, you’d need to be able to enforce it. It’s much better to not let it reach the point of being able to enforce it. The bottom line: Co-signing an loan is an incredibly risky thing to do as it puts your credit at risk. Before co-signing the auto loan or other type of loan, consider what you will do if the primary borrower defaults. Instead of co-signing, might think about working with them and looking for options that don’t require a cosigner. If you’ve signed the loan and the borrower is in arrears with payments There are several alternatives. It’s important to know that you do not have the power to take possession of the vehicle on your own. Instead, you’ll need to work out a solution with the primary borrower or continue to make payments for the lender. 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Written by Points and Miles Expert Contributor Dan Miller is a former contributor to Bankrate. Dan wrote about loans, home equity , and the management of debt in his work. Written by Rashawn Mitchner. Edited and written by associate loans Editor Rashawn Mitchner is a former editor in the associate department at Bankrate.

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