Who Has to Buy Car Insurance on a Co-signer Loan?

When applying for an auto loan, a lender may ask an applicant if he has a co-signer. For instance, a parent with established credit might co-sign for a child with no credit history or a husband might co-sign for a wife. When it comes to purchasing insurance for the car, both borrowers on the car loan must decide who will buy the insurance policy.

A co-signer loan is an arrangement where one person backs another’s car loan application for approval. Both people are responsible for paying the lender for the loan. If the primary borrower defaults or cannot pay, the co-signer must then take up the slack. The credit history of both parties is at risk in case of a default. The main loan applicant is automatically listed on the title at purchase. It is up to the lender and car seller to decide to list the co-signer on the title; in most cases that will happen by default.

The person listed on the title and registration must match the car, and the registered owner of the car must also have valid insurance policy for the vehicle. To avoid potential issues, the main applicant listed on the loan and title should be the person who buys the insurance policy for the car. If the title lists both names, the owners can also secure a car insurance policy in both names if they wish.

One common scenario where both co-signers might be listed on one insurance policy is if a parent co-signs a car for a child. When the parent co-signs on the loan it allows the child to get insured under the parent’s policy, as long as the child is listed as a driver as well. It’s important to ensure that the lender plans to list both parties as co-owners or at least the parent as the main owner on the title to add a child’s vehicle on the parent’s policy.

You should start searching for car insurance before you even go car shopping. Get quotes from a variety of insurance companies based on the type of car you wish to buy and either you or the co-signer’s driver’s history. Note that each co-owner as shown on the title is also listed on the car’s registration paperwork. The rules for insuring a financed car vary by state, so check with your department of motor vehicles before you visit a car dealer.