The Risks of Being a Cosigner on a Car Loan

As a cosigner on a car loan, you stand to take a few risks. Sometimes, those risks are not properly considered or weighed properly. The basic premise is that you will assume the debt, if the other person does not make the payment.

Unaware of Late Payments

As a cosigner on a car loan, you will not receive the monthly statement on the loan. The primary borrower on the loan will receive the monthly statement and be in charge of making the payments. If they make the payments on time, everything is fine and you will never have an issue. However, if they fail to make the monthly payments, it can cause major problems. As the cosigner, you will often have no idea that they are not making the payments. You will not hear about the problem until it has escalated to a much bigger issue. At that point, you may not be able to do anything about it anyway. Therefore, a lack of communication can cause serious problems for the cosigner. 

Taking Over the Loan

Another risk that you take on as a cosigner is that you may have to take over payments on the loan. If the primary borrower on the loan notifies you that they can no longer make the payments, the responsibility will fall directly upon you. For example, let's say that the primary borrower loses their job or becomes disabled. If something like this were to happen, you would then have to make their monthly payments until the loan was paid off. If you are already spending nearly everything that you make each month, this can be a devastating blow to you personally. It could result in you not being able to afford all of your monthly obligations. 

Credit Damage

All of the above situations also come with their fair share of credit damage as well. If the primary borrower does not make the monthly payment, it will also affect your credit negatively. This situation requires that you put a lot of faith into the primary borrower. Your credit score is basically in their hands. 

Missed payments are one of the most damaging criteria when calculating a credit score. The credit bureaus look at this and will lower your score as a result. If the primary borrower never notifies you that they have not been making the payment for several months, you might not hear about the problem until the car is repossessed. At that point, both the primary borrower's and your credit will be devastated. A repossession will stay on your credit file for 7 years. During that time period, you will have great difficult in obtaining credit for anything else. You will have to live your life on mostly a cash basis. 

Your credit is one of the most important things that you have. Putting it in the hands of someone else requires a lot of faith in that individual. Make sure that you can trust the primary borrower before you agree to cosigning a car loan. 

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