To trade in or sell a vehicle, you, the primary borrower, must be present at a sale and sign the title. A cosigner may have obligations to the loan on the car, but they don’t have any ownership rights, which means they have no say in whether or not you keep, trade-in, or sell the vehicle.
Trading A Car With A Cosigned Loan
If you’re thinking about trading in or selling your car, but you enlisted the help of a cosigner when you originally took out your loan, you may be wondering how it works. Let’s clear things up with cosigners and how they operate when it comes to the end of an auto loan.
- Does a cosigner have to come with me when I sell the car? Nope! If your credit score has improved since the start of your car loan and you’re ready to upgrade alone, you can trade in or sell the vehicle without the cosigner being present for the title signing. A cosigner doesn’t get any rights to the car that they cosigned for, and their name isn’t listed on the title.
- If you're trading in the car, your equity situation plays a role. When there's equity in your car, the dealership pays you the difference between what your vehicle is worth and what you owe on the old loan, paying off the old lender in the process. This means your cosigner would be all set, and no longer has any obligations once the loan is paid.
- Selling a vehicle with negative equity. If you're trying to trade in with negative equity, you either have to pay the difference between what you owe and what the car is worth or roll the negative equity in your new loan. Either way, the old loan is taken care of so the cosigner is off the hook. However, cosigners can be on the hook for the balance if you don't pay off your auto loan right away. Selling your car without getting enough cash to cover your remaining loan balance immediately is risky, and could lead to defaulting on the loan and ruining both of your credit scores. If you’re considering selling a vehicle and you owe more on it than it’s worth (called having negative equity), talk to your cosigner about your plans first.
- Communicate with your cosigner. If you’re simply ready to get into another car, it’s probably more polite to tell the cosigner that you’re selling the vehicle. Remember that their credit was on the line when they agreed to sign the loan, and it’s nicer of you to let them know the status of the auto loan and the car. If your credit score hasn’t improved much or you simply need another vehicle, your current cosigner may be able to help you get into another auto loan. If you need them to cosign again, consider bringing them along for the trade-in or sale of your current car to move the process along.
Cosigners And How They Help
When you ask someone to cosign on an auto loan with you, it’s usually because your credit isn’t in the best shape, or you may be a new borrower. Cosigners are common for first-time car buyers or those who simply have a lower credit score. Many borrowers intend to improve their credit score with the help of the cosigned auto loan, so they can get into one by themselves in the future.
Many lenders can be hesitant to approve a borrower with less-than-perfect credit. A cosigner helps is by lending you their good credit score and agreeing to pay for the vehicle if you can’t, which can allow you to get approved. However, if you default on the auto loan and don’t pay for it, both you and the cosigner are on the hook for the remaining loan balance.
Essentially, the cosigner acts as a backup payer. Often, it’s a big risk for a cosigner to help someone get approved for a car loan. A cosigner must have a good credit score, and if you start to miss payments, those get reflected on your credit reports as well as theirs. When someone sticks out their neck and cosigns an auto loan with you, their good credit score is on the line!
Bad Credit Car Loans
It can be difficult for a bad credit borrower to find a cosigner that can cosign a loan for them. It’s not a luxury that everyone has. For those without cosigners, there are still bad credit vehicle financing options.
For borrowers with less than stellar credit, or those who don’t have the help of a cosigner, there are subprime car loans. Subprime lenders work through dealerships with special finance departments, and they know how to assist borrowers in difficult credit situations. These lending options aren’t available everywhere, since not all dealers are signed up with these bad credit lenders.