Car buyers usually seek co-signers when their credit is not strong enough for a car loan or a low interest rate. The co-signer obligates himself to pay the auto loan payment if the other signer fails to do so. Having a co-signer does not necessarily affect your car insurance rates, but you may need to add the co-signer as an additional insured party on your car insurance policy if he is named on the title.
Adding a Co-Signer
If you use a co-signer to qualify for an auto loan, you create a legally binding contract. This primarily affects the payment of the loan -- not the auto insurance if you, the car owner, drive the car and carry the insurance in your name alone. The insurance company still has to approve you for the policy based on your driving and accident history. The policy shows the lender as the lien holder.
Co-Signing and Co-Owning
Your co-signer does not necessarily own part of the car, unless his name appears on the title or registration. If it does, you may need to name him as an additional insured party on your policy. An owner can be exposed to third-party liability issues if an accident that's your fault causes damages or personal injury. Technically, the co-borrower does not own the vehicle if not on the title, but an aggressive lawsuit can bring the co-signer into the fray. For this reason, some insurers advise you to add the co-signer to your policy as a precautionary measure -- even if the co-borrower is not named on the title.
Also, some auto lenders ask you to provide proof of insurance that includes both signers. If not, you have a choice. If the co-signer is your mother or father and you live in the same house, you can often add one or both of your parents as an additional insured, but not as a driver. Usually, the auto insurer does not charge extra for this. If the parent is also a driver, it can affect your rate due to the driving and accident record of the additional driver.
Checking With DMV
Your state's Department of Motor Vehicles, or similar agency, and the lender can clearly spell out your co-signer's obligations based on state law and the actual paperwork for the loan. It's worth a call to verify exactly where your co-signer stands before you set up your insurance. Also, most qualified insurance professionals can help you figure out the right way to handle your specific situation. Just make sure you can explain whether or not the co-signer is only a co-borrower or a co-owner.
- Bankrate.com: Co-signer Shouldn't Affect Car Policy
- Bankrate.com: Does Loan Co-Signer Co-Own Car?
- Consumer Financial Protection Bureau. "What Is a Co-Signer?" Accessed Dec. 18, 2019.
- Santander Bank. "Personal Loans From Santander Bank." Accessed Dec. 18, 2019.
- Wells Fargo. "Personal Loans." Accessed Dec. 18, 2019.
- Consumer Financial Protection Bureau. "What Are Common Credit Report Errors That I Should Look for on My Credit Report?" Accessed Dec. 18, 2019.
- Consumer Financial Protection Bureau. "How Do I Get and Keep a Good Credit Score?" Accessed Dec. 18, 2019.
- New York State Higher Education Services Corporation. "NYHELPs Cosigner Liability and Release." Accessed Dec. 18, 2019.
Chris Brantley began writing professionally for a financial analysis firm in 1997. From 2000 to 2004, he worked as a financial advisor, specializing in retirement planning and earned his Series 7, Series 66 and insurance licenses. Brantley started his full-time writing career in 2012 and has written for a variety of financial websites, including insurance, real estate, loan and investment sites. He holds a Bachelor of Arts in English from the University of Georgia.