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How co-signing a car loan affects insurance Part Of Financing a Car With Co-Signers in this series Financing a car with Co-Signer
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3 min read 21st September 2022
Written by Kellye Guinan Written by Personal and business finance contributor
Kellye Guinan is a freelance editor and writer with more than five years of experience in personal finances. She’s also a full-time librarian at the local library where she helps people in her community get information on financial literacy, among other topics.
Editor: Rhys Subitch Edited by Auto loans editor
Rhys has been editing and writing for Bankrate from late 2021. They are passionate about helping readers gain the confidence to control their finances through providing concise, well-researched, and clear information that breaks down otherwise complex subjects into digestible pieces.
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When you or a loved one requires assistance in securing the loan to buy a car, you may be asked to co-sign the loan. And while you will be responsible for the loan, agreeing to co-sign and not be a factor in your own auto insurance policy or the premiums you pay. There may be some changes to your insurance policy to be aware of prior to accepting co-signers. Co-signing an auto loan is unlikely to affect your insurance . Helping someone buy an automobile isn’t something to be done lightly. However, it’s unlikely that co-signing the loan will impact your insurance coverage for autos or the rate you pay for insurance. If you don’t plan to drive the vehicle you are co-signing for, there should be no changes to your . “Co-signing for a vehicle loan will not affect your own insurance premium, unless, of course, you decide to add the vehicle you co-signed to your insurance policy, in which case your premium will increase in order to cover the additional vehicle,” says Douglas Heller director of insurance for the Consumer Federation of America and an internationally-recognized expert on insurance. While there could have consequences in the event that the individual you are co-signing on behalf fails to make payments but your insurance coverage should not be affected. Exceptions to the rule There are a few specific exemptions from this policy. If you live with the primary borrower of the loan and are already on the same insurance, your policy will be affected. As Heller states, the policy premium will be increased to reflect the additional vehicle. However, even if you drive the vehicle frequently could require you to add it to your insurance policy, which will increase your premium. Co-signers are not usually liable for injuries if their vehicle is involved in a collision or an accident, you are generally not liable as a co-signer. “Co-signing for a car loan doesn’t make you liable for the primary borrower’s reckless driving, drunken driving or driving without auto insurance,” declares Steve Sexton, a financial advisor and the CEO of Sexton Advisory Group. But the limitations of your responsibility are altered when your name appears on the title of the vehicle as co-owner . This could be the case if you were a full co-applicant of the loan as opposed to merely co-signer. In this situation you could be held accountable for damages in an accident if the driver of the vehicle you share ownership with is found to be the one responsible or the one who caused the collision. If the incident results in an action, you could be liable. However, even if the co-owner doesn’t get blamed for the accident, your premiums may still rise. A co-signer is different from. being a co-owner co-signer is only responsible to the loan. The lender will contact you if there are late payments or if the primary borrower is in default. Because a co-signer acts as a guarantor of the primary borrower, you are required to be able to pay for the loan in the event that the primary borrower is not able to. However, it has no impact on the insurance you have. You’re only a co-owner of a car when your name appears on the title. Co-owners share an equal interest in the vehicle and are equally responsible for keeping the loan payment current, when the loan is used to purchase the vehicle. So, a co-owner would also need to list the vehicle on their insurance, whether it is frequently driven or not. In the end, this means an increase in your policy cost. Co-signers do not hold any legal rights to ownership or stake in the vehicle and your name will not be listed on the vehicle’s title. However, not every lender offers a co-signing option. Some lenders will only accept co-signing on a joint application, which puts you at stake for the loan and the vehicle itself. This means that your insurance company will need to be informed — since you will be on the vehicle’s title — and your insurance may be affected. The bottom line Co-signing an auto loan for the benefit of a loved one or friend could be an enormous benefit for the primary buyer. Although there are some risks to your credit as a co-signer, your car insurance policy should remain the same. Before you make this move, call your insurance company to find out if your policy will be affected.
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Written by Business and personal finance contributor
Kellye Guinan is a freelance editor and writer who has more than five years ‘ experience within personal financial matters. She is also a full-time librarian at the local library where she helps the community gain access to information on financial literacy, among other subjects.
Edited by Rhys Subitch Edited by Auto loans editor
Rhys has been editing and writing for Bankrate since the end of 2021. They are dedicated to helping their readers feel confident to take control of their finances through providing concise, well-studied facts that break down otherwise complicated topics into bite-sized pieces.
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