Before you co-sign a car loan

Statement of understanding

CO-SIGNER · READ EACH CLAUSE · INITIAL ONLY IF TRUE

1. I understand that I am promising to repay this entire debt myself if the borrower does not.

   Not a share of it, not a reference, not a character witness. A co-signer is typically as responsible for the full balance, plus any late fees or collection costs the contract allows, as the person driving the car.

2. I understand that the lender may be able to come to me for payment without first chasing the borrower.

   People often assume they are a last resort, called only after every effort to collect from the borrower has failed. Depending on the contract and state law, that may not be so. Before signing, you may be given a separate notice to co-signer explaining your liability. Read that one twice. It exists for exactly this moment.

3. I understand that this loan will appear on my credit reports, and so will every late payment.

   The account is reported on your file as if you took it out yourself. If the borrower pays late, your history shows it. You might not find out until you apply for credit of your own and a lender asks about an account you've half forgotten. How a car lender reads your credit shows where it would sit.

4. I understand that this debt counts against me when I borrow for myself.

   Even if every payment is on time, the monthly obligation shows up in your debts. A lender sizing up your own mortgage or car loan can count it, which may shrink what you're offered at a moment that matters to you.

5. I understand that owing on the car does not mean I own any of it.

   Being on the loan and being on the title are separate things. A co-signer is often not a titled owner at all, so you can carry the debt without having any say over the car: whether it's sold, where it's kept, who drives it. Ask to see whose names will appear on the title application.

6. I understand that I may not hear about a missed payment until after it has happened.

   Statements generally go to the primary borrower. Ask the lender whether you can receive copies or online access as co-signer, and agree with the borrower now that they'll tell you the day a payment is going to slip, not a month later.

7. I understand that if the car is repossessed and sold for less than is owed, I may owe the difference.

   Repossession doesn't necessarily end the debt. If the sale doesn't cover the balance plus the costs the contract and state law permit, the shortfall, often called a deficiency, can be pursued from either signer. What happens if you miss a car payment sets out how that sequence tends to unfold.

8. I understand that I probably can't take my name off this loan later just by asking.

   A lender that approved the loan partly because of you has little reason to release you. Some contracts mention a release after a run of on-time payments; many don't. Assume your obligation runs until the loan is paid in full or the car is sold and the balance cleared, unless the contract in front of you clearly says otherwise.

9. I understand that if the car isn't properly insured, my risk goes up.

   If the car is wrecked and the insurance lapsed, the loan still exists and the collateral doesn't. The lender will require insurance; you have no control over whether it stays paid unless you arrange to be informed. Asking to be listed as an interested party, if the insurer allows it, is one way.

10. I understand that if my relationship with the borrower changes, the loan does not.

    Breakups, estrangements and deaths don't rewrite contracts. Couples who co-sign for each other face this most often; sorting out the car after a separation maps the combinations of names on the title and the loan.

11. I understand that I should be able to afford every remaining payment myself.

    This is the test that settles most of the others. Take the monthly payment, multiply it by the number of months, and ask whether you could carry that in your own budget, next to your own bills, if you had to start next month. If the answer is no, co-signing is a bet on someone else's next five or six years going smoothly.

12. I understand that I am entitled to copies of everything I sign.

    The contract, any co-signer notice, and the payment schedule. Keep them somewhere you'll find them in four years, when you may need them.