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Manage Your Co-Signed Auto Loan With Extreme Care

Michael Jones

Auto Loan Expert

If you are looking to buy a car but don’t have the best credit, you may have considered asking someone close to you to co-sign a loan. Obtaining a co-signer can help you gain access to the money you’re looking for to purchase a new car and help you build or establish your credit, but there are a few things you should know before you commit.


A co-signer is someone who will be legally responsible for paying back a loan that the primary borrower cannot pay. Generally, a person will reach out to a close friend or family member with good credit and a reliable source of income.

Needing a Co-Signer

You may find you need a co-signer when you want to qualify for loans you’re looking to take out, and you otherwise fit the following criteria:

  • You don’t meet the necessary income requirements for obtaining that loan
  • You have no established credit
  • You're applying for an auto loan bad credit option
  • You’re self-employed or you’ve recently changed jobs
  • You don’t meet the minimum income requirements
  • Your debt-to-income ratio is high

Why a Co-Signer Helps

When you apply for credit using a co-signer to help you secure your loan, you can qualify for credit you wouldn’t otherwise be able to qualify for on your own. Keep in mind that you’re still responsible for paying the debt on a timely basis, as you’re then establishing a good payment history which can give your credit score a boost.

It’s best that you monitor your credit score as you continue to pay off your loan. If you’re able to manage your loan payments in a responsible manner you’ll watch your credit score grow and you’ll be able to eventually qualify for loans on your own.

The Responsibility of a Co-Signer

Simply put, a co-signer’s responsibility to pay back any debt that you as the primary borrower does not. This includes late fees. In some states, the creditor can attempt to collect the debt from both the primary borrower and the co-signer. Some laws allow creditors to attempt to collect the debt from the co-signer first, even taking such drastic measures as wage garnishing in order to obtain the past due amount.

Releasing Your Co-Signer from His Responsibilities

There are some loans that provide the option of releasing the co-signer. Typically this is done once a certain amount of payments made on time are complete and a credit check shows that the primary borrower can handle the loan on his own. Refinancing may also be an option if you’re ready to take on the sole responsibility of the loan.

Be Responsible

It’s very important that you manage your account with extreme care. Pay your loan as agreed and on time each month. Your co-signer is doing you a favor and if you fall behind on your payments and the loan becomes delinquent, that not only shows up on your credit report, but your co-signer’s as well. Not too mention the fact that the loan is also the co-signer’s legal responsibility to pay. If you’re close to this person, which one would assume you were considering they’re taking a risk on you, don’t take advantage of their kindness.

Take a close look at your financial situation before you ask a co-signer to sign a loan. Do you have the necessary income to allow you to easily manage your payments each month? Look at your employment situation. Do you expect to be in the same, secure job in a year or two?

Keep in mind that it’s not just your credit report on the line, so only apply for auto loans that you know you can comfortably manage. Paying a co-signed loan should be a top priority in your overall budget.