A cosigner may become the primary borrower on a car loan through reaching an agreement with the lender or refinancing the car loan. However, it can become a complicated matter.
Typically, a cosigner has been added to a car loan application to improve the odds of approval, thanks to, say, a favorable credit score. However, the cosigner doesn’t usually have ownership of the vehicle that the loan is funding.
Below, learn more about how a cosigner may become the primary borrower on a car loan.
Key Points
• A cosigner can become the primary borrower by reaching an agreement with the lender or refinancing the loan.
• Options include refinancing, paying off the loan, or selling the car to shift financial responsibility.
• Cosigners are legally responsible for loan payments if the primary borrower defaults, impacting credit score.
• Cosigners do not automatically gain ownership of the vehicle unless they have been added to the title.
• Communication with the lender and seeking legal advice can be crucial steps in the process.
What Is an Auto Loan Cosigner?
An auto loan cosigner is an individual — usually a friend, partner, or family member — who cosigns a primary borrower’s auto loan contract. A creditworthy cosigner can help a primary borrower get approved for auto loan financing. The cosigner doesn’t have ownership of the vehicle but agrees to accept financial liability if the primary borrower falls behind on loan payments.
Why would a primary borrower seek a cosigner? A primary borrower with bad credit may need a creditworthy cosigner to get approved for a car loan. Or a primary borrower with good credit may need a cosigner with excellent credit to qualify for a lender’s lowest annual percentage rate (APR).
If you have bad credit, no credit, or fair credit, a creditworthy cosigner may help you get approved for car loan financing. The cosigner is legally responsible for meeting the financial obligation of the loan if the primary borrower doesn’t make the payments. If payments are made late or the primary borrower defaults on the loan, this can damage the credit scores of both parties.
If you are more than 30 days past due or delinquent on your car loan payment, lenders may report the delinquency to all three major credit bureaus.
Ways a Cosigner Can Become the Primary Borrower
As a cosigner, you’re financially guaranteeing that the loan payments will be met on time and in full. If the primary borrower wants to explore how you, as cosigner, may become the primary person on the loan, talk to your current lender. This may involve refinancing the car loan. More information about refinancing is found below.
Recommended: What Should Your Average Car Payment Be?
Can a Cosigner Take Possession of the Car?
If you have the car, you may be wondering: Can a cosigner take my car? If the primary borrower isn’t keeping up with loan payments, the cosigner cannot take possession of the auto. While a cosigner has a financial obligation to the lender, they have no legal ownership or right to take possession of the car, unless they were specifically added to the car. In other words, a cosigner is typically on the vehicle’s note (making them liable for the payments) but not the car title (which indicates ownership).
Therefore, you can’t repossess the car from a primary borrower who isn’t paying their debt. (However, if you were a co-borrower, it’s possible that you could jointly own the vehicle with the other borrower.)
Can a Cosigner Sue the Primary Borrower for the Entire Amount of a Loan?
One option that’s available: A cosigner does have the right to sue the primary borrower to recover the funds spent making loan payments. It will then be up to the court to decide whether to award any damages to the cosigner. If you’re considering whether to sue, take court costs and the fee of hiring a lawyer into account.
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What Happens When a Cosigner Sues the Primary Borrower?
As a cosigner, you may decide to file a lawsuit to recover the funds you paid toward the car loan. If you had the primary borrower sign a separate agreement where he or she agreed to meet the payments, your lawsuit could potentially also have a focus on breach of contract.
Plus, if the lender sues you, then you can file a suit against the primary borrower to claim that they, not you, should satisfy the lender’s payment requirements. But all this requires time, energy, and probably money. There aren’t guarantees that you’d win. If you lose, you could face owing legal expenses and the loan’s remaining debt and fees.
The Rights of the Primary Borrower on a Car Loan
The primary borrower has the ownership rights to the vehicle. The cosigner does not, unless they were specifically added to the title. This is the case whether the borrower bought the car from a dealership or from a private seller using a private party auto loan.
The Rights of the Cosigner
When cosigning a loan, the person is taking on responsibilities rather than rights. The cosigner is responsible for making payments if the primary borrower doesn’t, and this doesn’t give the cosigner rights to the vehicle. As noted above, cosigners do have the ability to sue the primary borrower, and the court will decide the outcome.
Can a Cosigner Be Removed from a Car Loan?
It’s possible to remove a cosigner from an auto loan. One of the simplest ways to proceed is to ask the lender whether the loan comes with a cosigner removal option that can be exercised when the primary borrower can qualify for the loan by themselves or other conditions have been met.
If this is a possibility, the lender may require the cosigner to sign a release form. If the relationship between the primary borrower and cosigner is a good one, this may be a simple process. After all, being taken off a loan can help the cosigner because they would no longer be responsible for the car payment. If it’s part of a contentious divorce or other situation where the relationship between the two parties is now poor, this process may be more complicated.
Ending a Cosigned Car Loan
Other ways exist to end the existence of a cosigned car loan. Here are the most typical:
• Pay off the loan
• Refinance
• Voluntary surrender
• Sell the car
Here’s more information on each option:
Pay Off the Loan
If the cosigner is financially able and willing to help the primary borrower make payments, then this can be the most straightforward approach. Once that debt is paid off (either through regular payments or in a lump sum), then the cosigning situation automatically ends.
Refinance
If the primary borrower successfully goes through the auto refinance process on their own merits, then the cosigned loan would be replaced with the new one. This is one of the more typical ways to remove a cosigner from a vehicle loan.
Recommended: Pros and Cons of Car Refinancing
Voluntary Surrender
If the primary borrower can’t make payments, the lender has the option to repossess the vehicle. This can come with plenty of costs and, if the primary borrower can’t pay, the lender can come after the cosigner. Willingly giving up the vehicle can save time, money, and hassle.
Sell the Car
If the primary borrower struggles to make payments and refinancing is not a viable option, then selling the vehicle can be worth considering. The borrower could sell the car, pay off the cosigned loan, and use whatever is left to purchase a more affordable vehicle.
Auto Refinancing Options
If you’re considering the auto refinance process and its typical timeline, here’s more about how auto refinancing works. Steps include:
• Collect the documents you’ll need, including information about your vehicle, the current loan, auto insurance, and your income and employment details.
• Shop around, compare rates, and consider refinancing with the same lender if your current lender offers terms that are right for you.
• Apply for the auto refinance loan with the lender of your choice.
• Seek a cosigner if you’re interested in refinancing your auto loan with a cosigner.
• Once the loan is approved, the lender will pay off the old loan and future payments go to the new one under the new rate and terms.
Recommended: Financing a Car Out of State
The Takeaway
Cosigning a loan comes with plenty of responsibility: You are on the hook for the loan, though you won’t have ownership of the vehicle unless you were specifically added to the title. You may be able to become the primary borrower on the loan if this is your goal, depending on the loan’s fine print and the other party involved. One option could be refinancing the loan and becoming the primary borrower and having the title transferred to you.
If you’re seeking auto loan refinancing, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your car in minutes.
FAQ
Does a cosigner’s name go on the title of a car?
In most cases, the cosigner of a car loan does not have their name put on the vehicle’s title unless they are specifically listed as a co-owner. However, this can vary by jurisdiction, so it can be wise to do your research.
If the borrower defaults, can a cosigner take ownership of a car?
If the borrower defaults on a car loan, the cosigner becomes liable for payments but does not take ownership of the vehicle unless their name was on the title. This scenario is an important consideration before agreeing to be a cosigner. This default situation could be remedied by the sale or voluntary surrender of the car.
Can a cosigner remove themselves from a car loan?
A cosigner can be removed from a car loan, but the primary borrower must usually be involved in the process. Typically, the loan will need to be refinanced or paid off, or the car can be sold. In some instances, the lender might grant a cosigner release which would keep the loan open. Check with the lender to determine what options are available.
Photo credit: iStock/Miljan Živković
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