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What effect does co-signing on a car loan affects insurance Part Of Financing a Car with Co-Signers In this Series Financing a Car with a Co-Signer
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3 minutes read. Published September 21, 2022
Writer: Kellye Guinan Written by Personal and business finance contributor
Kellye Guinan is a freelance editor and writer who has more than five years of experience in personal finances. She is also a full-time worker at her local library where she helps her community access information about financial literacy, as well as other topics.
The edit was done by Rhys Subitch Edited by Auto loans editor
Rhys has been writing and editing for Bankrate since late 2021. They are committed to helping readers gain the confidence to take control of their finances through providing concise, well-researched, and clear information that breaks down complex subjects into digestible pieces.
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When you or a loved one is in need of assistance to secure the loan to purchase a car and you are asked to sign the loan. While you'll be accountable for the loan however, a co-signing and not be a factor in the auto insurance policy you have or the rate you pay. There may be some changes to your insurance policy to keep in mind before accepting co-signer. Co-signing a car loan probably won't impact your insurance . Helping someone buy an automobile isn't something to be done lightly. However, it is likely that co-signing for a loan could affect your auto insurance policy or the premiums you pay for insurance. If you do not plan to drive the car you co-sign for then there shouldn't be any modifications to your . "Co-signing for a vehicle loan should not impact your own insurance premium in the event that, for instance you decide to include the co-signed vehicle to your own insurance, in which case the premium would increase in order to cover the additional vehicle," says Douglas Heller director of insurance at the Consumer Federation of America and a nationally recognized insurance expert. So while there may be consequences if the person who you are co-signing on behalf is unable to pay, your insurance should generally not be affected. Some exceptions to the rule are a few specific rules that do not apply to you. If you reside with the primary borrower on the loan and are already on the same insurance, your policy is affected. As Heller states, the policy premium will be increased to reflect the additional vehicle. But even driving the car often could mean that you have to include it in your insurance policy, which will increase your premium. Co-signers are generally not held accountable for accidents If the vehicle is in the middle of a collision or accident in general, you're not responsible as a co-signer. "Co-signing for an auto loan doesn't make you liable for the borrower's poor driving, or DUI, or driving without insurance," declares Steve Sexton, a financial advisor and CEO of Sexton Advisory Group. But the limitations of liability change if your name is on the title of the vehicle as co-owner . This could be the scenario in the event that you were a co-applicant for the loan, not just a co-signer. In this case you could be held accountable for the damages caused by an accident if the driver of the vehicle you co-own is determined to be at fault or who caused the collision. If the incident results in a lawsuit, you could be liable. Even if your co-owner doesn't get blamed in the accident, your premiums may still rise. Co-signing vs. becoming a co-owner A co-signer has only responsibility on behalf of the loan. The lender will notify you in the event that there are late payments or if the primary borrower fails to pay. Co-signers act as a guarantor to the primary borrower, you are required to make payments on the loan even if the primary borrower isn't able to. However, this has no effect on the insurance you have. It is only co-owner in a vehicle in the event that your name is mentioned on the vehicle's title. Co-owners share an equal interest in the car and are equally accountable for keeping loan payments on time when the loan was used for the purchase of the car. So, a co-owner would have to also list the car on their insurance, whether it is driven frequently or not. This will result in an increase in your insurance premium. As a co-signer, you don't have legal ownership rights or stake in the vehicle and your name will not appear on the car's title. However, not all lender offers a co-signing option. Some may only allow co-signing on a joint application, which puts you at risk for the loan as well as the car itself. This means that your insurance company needs to be informed -- as you'll be listed on the vehicle's title -and your insurance will be affected. The bottom line Co-signing a car loan for a friend or loved one could be an enormous benefit for the principal buyer. Although there are some risks to the credit of co-signer, your vehicle insurance will remain the same. Before you make this move, call your insurance company to find out if your policy will be affected.
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Written by Business and personal finance contributor
Kellye Guinan is a freelance editor and writer with more than 5 years experience working in the field of personal finance. She also works full-time as a employee at her local library, where she assists people in her community get information about financial literacy, among other subjects.
Editor: Rhys Subitch Edited by Auto loans editor
Rhys has been writing and editing for Bankrate since the end of 2021. They are dedicated to helping their readers gain the confidence to manage their finances by providing precise, well-researched and researched information that breaks down complicated subjects into digestible pieces.
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