Will a Cosigner Be on the Title of a Vehicle?

If you’re having trouble getting a car loan, using a cosigner could help. Before you take this step, it’s important to understand what a cosigner is and how having one on your car loan works. For instance, is a cosigner on the title of a vehicle?

It’s crucial to understand the role cosigners play when purchasing a vehicle. In this article, we’ll cover what you need to know about using a cosigner and the impact it could have on your credit and vehicle ownership.

What Is a Cosigner?

A cosigner is a person, usually a close friend or family member, who agrees to be responsible for repaying your car loan if you fail to do so. Lenders are more willing to approve a car loan with a cosigner because it reduces the risk of nonpayment.

During the application process, the cosigner provides their information, including their name, income details, and Social Security number. The lender uses this information to check their creditworthiness when considering the loan. Even if you have bad credit or no credit, you may still be approved for an auto loan based on your cosigner’s credit history.

Once approved for a loan, both you and your cosigner are listed as borrowers. Additionally, both parties must sign all paperwork associated with the loan. Signing these loan documents makes both you and your cosigner responsible for repaying the loan.

    Get matched with a personal loan that’s right for you today.
    Learn more

    Is a Cosigner on the Title of a Vehicle?

    In most cases, the cosigner isn’t listed on the title of the vehicle. The cosigner only pertains to the financial portion of the transaction and is not an owner of the car.

    This makes it a risky transaction for the cosigner because while they’re financially responsible for the car loan, they don’t receive any benefits (aside from potentially helping their credit). This means that if the actual owner of the car fails to make payments, the cosigner could end up paying off the loan without having any ownership of the car.

    Cosigners who are hesitant to make this type of commitment may request that their name be on the title of the vehicle as added protection. In some cases, a cosigner’s name may be added to the title. However, this must be done during the initial lending process as most creditors aren’t willing to make this change after the loan documents are signed.

    In many cases, if a cosigner insists their name be listed on the title, it becomes a co-ownership process rather than a cosigner. In these cases, both parties are part of the lending and purchasing process. Depending on how the title of the vehicle is handled, the original purchaser of the car may have trouble selling the vehicle without the co-owner’s permission.

    Impact on Owner’s Credit

    If you have bad or limited credit, using a cosigner on a car loan can have a positive impact on your credit score—as long as you make your loan payments on time each month.

    Your payment history accounts for up to 35% of your overall FICO® credit score, making it extremely important. Because many car lenders do report payments to the major credit reporting agencies, including TransUnion®, Equifax®, and Experian®, consistent, on-time payments can really help improve your credit.

    However, if you miss one or more payments or frequently make late payments, it can have the opposite effect on your credit. It’s crucial that you set a realistic budget before you start shopping for cars.

    Obtaining a car loan can also help diversify your credit, especially if you don’t already have an installment loan, such as a home mortgage or personal loan. Your credit mix can account for up to 10% of your FICO credit score. So, building a good mix of credit and maintaining a good payment history can help improve your credit health.

    Impact on Cosigner’s Credit

    Before agreeing to be a cosigner for a car loan, you should consider the impact this decision could have on your credit.

    Applying for a car loan will incur one or more hard inquiries on your credit. This factor could temporarily hurt your credit.

    As a cosigner, the entire debt of the car loan appears on your credit report. This new loan will likely increase your credit utilization ratio, which could negatively impact your credit score. Most experts recommend keeping this ratio below 30% if possible. Before you sign for the loan, take the time to calculate your credit utilization and make sure that even with the addition of a new loan, your rate is below this threshold.

    Finally, if the owner of the car makes on-time payments every month, cosigning this loan can have a positive impact on your credit. However, if your credit is high enough to be a cosigner, you may already have a strong payment history. In this case, being a cosigner likely won’t have a big impact on your credit.

    However, if the owner fails to make payments or makes late payments, it could impact both your credit and your wallet. Because your payment history accounts for as much as 35% of your overall FICO credit score, just a few missed payments could have a significant impact on your credit. Additionally, if the owner fails to make payments, you’re then responsible for making them—even if that means paying off the remainder of the loan. You should never cosign for a car loan unless you can comfortably make these payments.

    Alternative Options

    Before asking someone to be a cosigner, you should consider other options, such as:

    • Making a bigger down payment. If you’re having trouble securing a car loan, consider offering a bigger down payment. This may help you get the car you want by lowering the risk to the lender.
    • Looking for cheaper cars. If you don’t qualify for a new car, consider buying a used car. Most consumers can find some type of car loan even with bad credit—it just may be for a car of lower value.
    • Requesting a personal loan. If your friends or family members are hesitant to cosign a loan for you, maybe they can loan you the money to buy a more affordable car. This step could be less risky for the lender.
    • Building your credit. If buying a car isn’t an emergency, you can take time to build your credit and apply for a car loan later.

    The first step to improving your credit is to check your credit score and report, and then you can take the necessary steps for your situation specifically. Credit.com’s Free Credit Report Card or ExtraCredit® subscription can help you get started with this process.

    You Might Also Like

    A smiling woman hands a man the keys to a car he just successfully leased
    Getting a new car is a big decision, and you should choose your n... Read More

    October 20, 2020

    Auto Loans

    A woman in a bright yellow dress drives a silver car.
    Imagine you’re shopping for a new car and finally find a re... Read More

    August 6, 2020

    Auto Loans

    A man wearing sunglasses drives his car.
    According to the Consumer Financial Protection Bureau, around 2.3... Read More

    July 20, 2020

    Auto Loans