Cosigning Auto Loan Questions

[Anonymous]

I was thinking of helping my friend out with an auto loan since he's a first time auto buyer. Just had some general questions before I move forward. Thanks in advance, you guys/gals are always so helpful.

Assuming payments are current & no missed payments:

1. How long do I have to stay on the loan with him?

2. If I leave the loan does he need to refinance or can he keep the initial terms?

3. If I leave the loan early how would it show on my credit report? Any negative effects?

4. How hard is it to leave an auto loan as a co-signer? 

[Anonymous]

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@Anonymous wrote:

I was thinking of helping my friend out with an auto loan since he's a first time auto buyer. Just had some general questions before I move forward. Thanks in advance, you guys/gals are always so helpful.

Assuming payments are current & no missed payments:

1. How long do I have to stay on the loan with him?

2. If I leave the loan does he need to refinance or can he keep the initial terms?

3. If I leave the loan early how would it show on my credit report? Any negative effects?

4. How hard is it to leave an auto loan as a co-signer? 

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Depending on his credit. You will only need to help co sign if he have no credit. Even if it's first time car buyer he should be fine unless he have bad credit than u co sign Ming for him will only maybe help him get a better interest rate. Plan on staying on loan for at least 6-12 months depending on his credit profile. Make sure dealership does it right. Have him as primary and u as co signer so he can just refinance loan with only his name when he can. So make sure how his credit is first. If he have bad credit do u really wanna help him co sign and if u do make sure ur able to make payment if he's not able to. Now a days pretty much anyone can get financing for a car really just depend on rate. U can't leave loan as co signer until he can get loan under his own name

[Anonymous]

As PP said, if he's got even a marginal score, he should be able to get it on his own, just at a high interest rate.  Then it's his deal to refinance when his score improves, but there is no risk for you.

If you do cosign, know that the payments and balances will report on both credit reports, regardless of which one of you makes the payment. 

There is no such thing as just dropping a cosigner - the original loan will have to be refinance in just his name alone, which will cause the original loan to be paid off by the new lender and report as such on both reports.  Then the new loan will report only to his credit report and not yours, since you won't be on it.

Know that, especially if you are financing a new or late model used car at a higher-than-ideal interest rate (since your friend apparently is either a first-time buyer and/or has insufficient credit) - you are going to be underwater on this loan from the beginning unless he is prepared to make a large down payment.  That means no refinance until the value of the car and the loan balance are more in line with each other - which depending on situation can take a lot longer than a year or two, and in some cases may never happen until the end of the original loan.  You cannot get off of the original loan mid-stream.  You can only be released from responsibility when that one is paid off by a refinance or by making all of the payments.  So make solid decisions to protect yourself.

[RonM21]

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@Anonymous wrote:

As PP said, if he's got even a marginal score, he should be able to get it on his own, just at a high interest rate.  Then it's his deal to refinance when his score improves, but there is no risk for you.

If you do cosign, know that the payments and balances will report on both credit reports, regardless of which one of you makes the payment. 

There is no such thing as just dropping a cosigner - the original loan will have to be refinance in just his name alone, which will cause the original loan to be paid off by the new lender and report as such on both reports.  Then the new loan will report only to his credit report and not yours, since you won't be on it.

Know that, especially if you are financing a new or late model used car at a higher-than-ideal interest rate (since your friend apparently is either a first-time buyer and/or has insufficient credit) - you are going to be underwater on this loan from the beginning unless he is prepared to make a large down payment.  That means no refinance until the value of the car and the loan balance are more in line with each other - which depending on situation can take a lot longer than a year or two, and in some cases may never happen until the end of the original loan.  You cannot get off of the original loan mid-stream.  You can only be released from responsibility when that one is paid off by a refinance or by making all of the payments.  So make solid decisions to protect yourself.

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This is always something to keep in mind, because if he has issues, it can be reflected on your credit also.

[StartingOver10]

Most of us advise to not co-sign at all. And if you do end up co-signing, you are taking on a huge risk, even if it is a close relative.  I co-signed for each of my daughters. One paid religiously each and every month right on schedule, the other never paid a dime.  I know because I had each daughter pay me monthly and I made the auto loan payments so my credit wasn't disrupted in any way. It was easy for me to track that way. You have to ask yourself - are you willing to risk your good credit for this friend???

[Anonymous]

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@StartingOver10 wrote:

Most of us advise to not co-sign at all. And if you do end up co-signing, you are taking on a huge risk, even if it is a close relative.  I co-signed for each of my daughters. One paid religiously each and every month right on schedule, the other never paid a dime.  I know because I had each daughter pay me monthly and I made the auto loan payments so my credit wasn't disrupted in any way. It was easy for me to track that way. You have to ask yourself - are you willing to risk your good credit for this friend???

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Hope you beat her good for that.   Just kidding             Sorta 

[StartingOver10]

lol....no, but I was the mean mom for a while!