The Disadvantages of Having a Cosigner on Your Car Loan

Having a cosigner for a car loan can be beneficial for a car buyer. First time buyers or those with no or bad credit can benefit from the good credit rating of the cosigner. This helps to lower their interest cost and give them the opportunity to own the vehicle of their dreams. The downside to this is the potential for destruction of a relationship due to the borrower’s failure to meet their loan obligation and make payments as due.

A Shared Debt

A borrower and cosigner share in the debt obligation equally. This is important to understand because if anything happens to the borrower regarding the car loan, the cosigner has to step in and make good on the loan. This may cause an unintended financial burden for the cosigner and place a strain or severe a long-standing relationship.

Cosigner Is Attached to the Loan

The cosigner is attached to the vehicle’s title, but may not always be fully aware of the terms of the arrangement between the borrower and the dealer. In some cases where the cosigner and the borrower live in different cities or parts of the country, a cosigner may not be aware of some liability connected with the car until notified by the dealer or some third-party. This could be particularly true in the case where a younger borrower is involved in a vehicle accident and fails to properly notify the cosigner.

Unaware of the Car Loan Payment Status

A cosigner may not be fully aware of the car loan and its payment status. Since the borrower is the primary payer, payment notices may only be directed to the borrower and not the cosigner. Another issue that arises is that of the contract or loan agreement. Since the cosigner is seen as the responsible party in the arrangement, certain conditions may be added that are unfavorable for the cosigner.

Threats to the Cosigner – Borrower Relationship

When financial problems arise through non-payment of the loan, the relationship between the borrower and the cosigner is threatened. As an example, a cosigner may be unaware that the borrower abandoned the vehicle after being unable to maintain payment in a timely manner. The lender will come after the cosigner for the amount of the balance outstanding even though the car itself is nowhere to be found. This type of incident will cause irreparable harm to the cosigner and the borrower.

Agreeing to cosign a car loan for a borrower should be done only after careful consideration. Saying no to a potentially bad credit risk may cause a temporary rift in a relationship that may be worth it in the long run.

Need an Auto Loan? Get a Free Quote Here!