If you default on your auto loan, your cosigner is going to end up in the hot seat, too. A cosigner serves two purposes for a car loan: they attach their good credit to the loan to help you qualify, and they agree to make payments if you can't. If you have a cosigner and your loan is in default, someone dropped the ball.
What Happens When You Default on a Car Loan?
No one wants to default on an auto loan. This can lead to all sorts of problems with your credit and your ability to get a car loan in the future, but, most immediately, your vehicle is going to be repossessed.
Repossession can happen after one missed payment or many, depending on what your lender considers default (which will be written into the loan contract). A recovery service is called on by the lender, and they're allowed to take your car at any time from practically anywhere, as long as they don't breach the peace. In many cases, the lender doesn't even have to notify you of a repossession in advance.
Not only does a repo bring down your credit score and stay on your credit reports for seven years, a default impacts your cosigner's credit. When you used your cosigner's credit to qualify for the loan, their credit became as tied to the fate of the loan as yours.
Additionally, once the vehicle is repossessed and sold at auction, your cosigner can be held responsible for paying any deficiency balance. This means your lender can pursue them to pay any difference between the loan balance and what the car sold for.
Avoiding Auto Loan Default
If you don't want to put your cosigner, or yourself, through the stress of dealing with an auto loan default, repossession, and lower credit scores, your first step is to talk to your lender. At the first sign that you're going to miss a payment, you should contact both your lender and your cosigner.
When you're not able to make a payment or two, it's your cosigner's responsibility to make those payments in order to avoid defaulting on your loan. However, if you contact your lender, they might be able to offer you some options.
If they won't due to you having a cosigner, your cosigner should contact the lender if they also can't make the payment.
Couldn't Avoid Repossession?
If you're unable to avoid default, both you and your cosigner have rights when the vehicle is repossessed. You both should receive notice of your options, which may include the right to redeem the car and/or the right to reinstate the loan. You're both also notified of the date and time of the auction where the lender intends to sell the vehicle.
In the event that these options don't work for you, you may be in the market for another car. Since your credit takes a hit from the loan default, you may need to take some time to improve your credit score before applying for another.
When you're ready to begin your search for another vehicle, start here with Auto Credit Express. We work with a nationwide network of special finance dealerships that have lenders ready to work with people in challenging credit situations. You can get the process started now by filling out our quick, no-obligation auto loan request form.