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Co-signing a car loan affects insurance Part Of Financing a Car With Co-Signers in this series Financing a Car with Co-Signers
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3 min read Published September 21, 2022
Authored by Kellye Guinan Written by Personal and business finance contributor
Kellye Guinan is a freelance editor and writer who has more than five years ' experience within personal finances. She's also a full-time employee at her local library where she helps her community access information about financial literacy, among other subjects.
Edited by Rhys Subitch Edited by Auto loans editor
Rhys has been editing and writing for Bankrate since the end of 2021. They are committed to helping readers gain the confidence to take control of their finances with concise, well-researched, and clear information that break down complex subjects into digestible pieces.
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When you or a loved one is in need of assistance to secure a loan to purchase a car or other vehicle, you could be asked to sign the loan. While you'll be accountable for the loan, agreeing to co-sign it will not impact your auto insurance policy or the rate you pay. There may be some changes in your insurance that you need to be aware of prior to signing co-signers. Co-signing a car loan is unlikely to affect your insurance Helping someone purchase an automobile isn't a commitment to be taken lightly. However, it's unlikely that co-signing for a loan could affect the auto insurance policy you have or the premiums you pay for insurance. If you do not plan to drive the vehicle that you co-sign for then there shouldn't be any modifications to your . "Co-signing the car loan is not likely to affect your own insurance premium except, of course you decide to add the vehicle you co-signed to your own insurance and in that case, your premium will increase to reflect the added vehicle," says Douglas Heller, director of insurance for the Consumer Federation of America and an internationally recognized expert in insurance. So while there may have consequences in the event that the individual who you co-signing with does not pay the loan, your insurance should generally remain unaffected. Some exceptions to the rule are some specific exemptions from this policy. If you reside with the primary borrower of the loan and are currently on the same insurance and policy, then your policy will be affected. As Heller states the policy's premium will be increased in order to reflect the addition of the vehicle. However, driving the car often could mean that you have to include it in your insurance plan, which could raise your cost. Co-signers are not usually liable for any accidents if the vehicle is involved in the middle of a collision or accident in general, you're not liable as a co-signer. "Co-signing for a car loan isn't a reason to be liable for the primary borrower's bad driving, drunken driving or driving without auto insurance" states Steve Sexton, a financial advisor and the CEO of Sexton Advisory Group. But the limitations of responsibility change if your name is on the vehicle's title as a co-owner, which is the case when you are a full co-applicant of the loan, not just co-signer. In this situation you could be held accountable for the damages caused by an accident, if you are the owner of the car you share ownership with is found to be at fault or who caused the collision. If the incident results in an action, you could be liable. Even if your co-owner doesn't get blamed in the accident the premiums could increase. A co-signer is different from. being a co-owner A co-signer only has responsibility to the loan. The lender will contact you if you are in arrears or if the primary borrower fails to pay. Since a co-signer essentially acts as a guarantor to the principal borrower, you are required to be able to pay for the loan in the event that the primary borrower is unable to pay. But that has no impact on your insurance. You're only a co-owner of the car if your name is listed on the vehicle's title. Co-owners share an equal interest in the car and are equally responsible for keeping the loan payments current when the loan is used to purchase the car. This means that a co-owner will also need to list the car on their insurance coverage, regardless of whether it is driven frequently or not. Ultimately, that means an increase in your insurance premium. Co-signers will not have any legal ownership rights or stake in the vehicle, and your name will not be listed on the vehicle's title. However, not all lender has a co-signing policy. Some lenders will only accept the joint application. This will put you equally in the risk of the loan as well as the car itself. This means that the insurance company you use to be notified since you will be in the title of the carand your insurance could be affected. The bottom line: Co-signing for a car loan for a friend or loved one could be an enormous benefit for the primary buyer. While there are risks for your credit when you co-sign for co-signer, your auto insurance will remain the same. Before you make this move contact your insurance provider to see if your insurance policy will be affected.
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Written by Personal and business finance Contributor
Kellye Guinan is a freelance editor and writer with over 5 years experience working in the field of personal finance. She also works full-time as a worker at her local library where she assists people in her community get information about financial literacy, among other topics.
The edit was done by Rhys Subitch Edited by Auto loans editor
Rhys has been editing and writing for Bankrate from late 2021. They are dedicated to helping their readers gain the confidence to manage their finances through providing concise, well-studied data that breaks otherwise complicated subjects into digestible pieces.
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