Your cosigner on an auto loan can help you stop a repossession by making payments if you're unable to. If your car is repossessed, then both of your credit scores are going to drop and the missed payment(s) and repo is going to show up on both of your credit reports.
Cosigner’s Role during a Bad Credit Car Loan
A cosigner is a great way to get approved for an auto loan. Some lenders even require bad credit car buyers to have one.
Your cosigner signs a loan alongside of you, the primary borrower, which makes them legally responsible for the loan. This means they agree to put their finances and credit on the line for you. Because cosigners already have good credit, they aren’t going to want to tarnish it with missed payments or a repossession.
As the primary borrower, you’re responsible for making sure the loan is paid in full and on time each month. If you can’t do this, the lender can go after your cosigner for the money. If your cosigner can’t pay, then there’s a risk of repossession.
Repossession drops both of your credit scores and shows up on both of your credit reports. However, it typically affects their credit score more than yours. In most cases, the higher somebody's credit score is, the farther it falls from a negative action.
Cosigner’s Options during Default
Your cosigner is part of the auto loan, and they have a chance to avoid repossession. What they can do is ask the lender for a forbearance. To do this, the cosigner must contact the lender and ask for additional time to come up with the payment.
This should have been done earlier, but your cosigner can still try and ask before a repossession takes place. Besides that, however, their options become limited, and you have to take the reins on the loan.
There is the chance you could refinance the loan, although the odds of this happening were much better before any payments were missed. When you refinance, you can choose to extend the loan term to make the monthly payments more affordable. This isn’t ideal because you end up paying more in interest charges in the long run as a result of the longer loan term, but it does provide short-term relief.
If refinancing doesn’t work, then you may want to consider selling the vehicle to avoid repossession. Make sure the car has equity, meaning it’s worth more than the loan balance. Otherwise, you typically have to make up the difference in cash.
The Bottom Line
Don’t leave your cosigner in the dark. They agreed to help you out with the loan, and they need to be aware if you can’t keep up with the monthly payments. If you don’t, and your cosigner ends up being unable to pay, as well, you run the risk of repossession and damaging both your credit scores.
If you recently lost a car due to repossession, or are simply looking to finance a vehicle with poor credit, we want to help. Auto Credit Express works with a nationwide network of dealerships that have the lending resources you’re looking for. All you have to do to get the process of getting matched to a local dealer started is complete our free and easy auto loan request form.