||Ask Dr. Don
Does co-signer mean co-owner?
Dear Dr. Don,
I co-signed for my brother on a car loan. He defaulted,
and now the bank wants me to pay. On the contract, I'm listed as
the co-owner of the car. My question is, what is the difference
between being the co-signer and co-owner of a car?
Co-signing the loan meant that you agreed to be responsible
for the car payments if your brother didn't keep up with them. Your
credit report reflects the payment history on the car, so his default
is your default unless you make the payments.
You may or may not be listed on the car's title as
a co-owner. There are advantages and disadvantages to being listed
as a co-owner.
The key advantage is protecting your financial interest
in the vehicle if you have to make payments.
Disadvantages would include worries about insurance
coverage, parking tickets and liability issues if the car was involved
in an accident.
The bank will have a lien on the car's title, protecting
its interest in the collateral by keeping the car owner from transferring
title without paying off the loan. Once the bank repossesses the
car, most states allow it to sell the car at auction. The borrowers
remain responsible for the difference between the loan balance and
the sales price net of auction and repo costs. While it's conceivable
that the car could net more than the loan balance, it's not particularly
A voluntary repossession is marginally better on your
credit report and would reduce the lender's costs to repossess the
car. Selling the car yourselves and paying off the loan balance
could give you a higher price for the car and avoiding both the
repo and auction costs incurred by the bank. The hard part in this
approach is coming up with the cash to pay off the loan so you can
pass clear title to the new owner.
Repossession doesn't make your financial obligation
go away, it just changes the amount you owe the bank. The negative
information will stay on your credit report for seven years. You
can rebuild your credit history with time, but co-signing obligated
you just as much as it obligated your brother to make these payments.
-- Posted: June 5, 2003