If I Cosign for a Car Loan, Do I Have to Be on the Insurance?
Last Updated on February 10, 2020
Car loans often have strict financial requirements that can make them difficult to qualify for. In order to get around this, many people use cosigners who have a higher income level or better credit score to qualify for the loan. If you’re planning on cosigning for a car loan, you may wonder if you have to be on the insurance as well. Here’s what you need to know before cosigning.
What Is a Cosigner and When Do I Need One?
A cosigner is someone who takes financial responsibility for your car loan if you can’t qualify for it yourself. Even if you can afford a car loan, you may not have the credit score that your lender is looking for, or you may not hit a strict income threshold that certain lenders require. A cosigner that meets these financial requirements essentially gives the lenders the peace of mind they need to complete the loan. Many people rely on their parents or other family members as cosigners, but you can have anyone cosign your loans as long as they qualify. Cosigners will be financially responsible for the loan payments if the primary leaseholder cannot pay them. If you’re taking out a loan and are unsure of whether or not you need a cosigner, talk to your lender about their financial requirements before applying. It can take time to process a car loan, so you’ll want to streamline everything by making sure you have your cosigner ready ahead of time.
Do You Have to Be on the Insurance If You Cosign for a Car Loan?
If you’re planning on cosigning a loan for your child or another person in your life, you may be wondering if you have to be on the insurance plan. You are not required to be named on the insurance for the car if you are a cosigner since you’re not driving the car and you’re only responsible for the financial aspect of making the payments. However, there are some situations where you may choose to be on the insurance as a cosigner, even if it isn’t required. Here are some instances where you should consider it:
- You live in the same house as the primary driver of the car. Even if you don’t typically drive it, it makes sense to have you on the insurance policy, just on the off-chance you need to use it.
- You occasionally drive the car you’re cosigning for. Even if you don’t live in the same house, there are instances where you might still drive the car, particularly if it is a close family member or friend’s, or if you are cosigning the loan for business purposes. Not only will this give you coverage when you’re out on the road, but it will also lower the cost of insurance for the primary driver.
- You co-own the car you are signing for. This happens if your name appears on the vehicle’s title and registration documents. If this is the case, you could be found partially responsible if the car is involved in an accident and causes damages. You won’t want to take any chances with this, so it’s important to make sure you’re listed on the insurance.
- If your insurance company requires you to. Most insurance companies do not require this. However, there are a few that will insist that both the primary driver and the loan co-signer be on the insurance for additional legal and financial protection.
What Should I Consider Before Cosigning a Car Loan for Someone?
Before you cosign a car loan for anyone, it’s important that you understand the potential legal consequences. You are taking on financial responsibility for the car payments, and you’ll need to make sure that you have enough money available at any given time to make them, should the primary leaseholder be unable to make them. In order to prevent this from happening, it’s important to communicate with the leaseholder about their financial situation and make sure you’re both on the same page. You can also ask your lender to send both of you the monthly billing statements so that you’re on the same page about what needs to be paid. If they are unable to make a payment and you do not step in and make the payment for them, you could be held legally responsible for the payment, and it could affect your credit score. Even if the primary leaseholder doesn’t miss a payment, it’s important to note that becoming a cosigner could still negatively affect your credit, albeit in a much less significant way.
Will Having a Cosigner Increase the Cost of My Insurance?
If you’re driving a car and you need a cosigner, you may be wondering if the cost of your insurance will go up because of it. Your insurance rates will not increase because of a cosigner, so you won’t need to worry about this. However, one of the most common reasons for needing a cosigner is having bad credit. If your credit is poor, your insurance rates will already be high (unless you’re in one of the few states where insurance companies are not allowed to run credit checks). A good solution to this is to have your cosigner listed on your insurance policy as well, even though it is not required. Since their financial status is much better, they will likely make your insurance much less expensive, particularly if they also have a good driving record.
It’s often necessary for drivers to have a loan co-signer, particularly if they’re just starting out. Rates for young drivers can be expensive, and young people don’t often have the income or credit built up to get a good loan on their own. As a co-signer, you’re taking on financial responsibility for the loan, but you usually won’t have to be on the insurance. It’s important to make sure you understand the financial and legal implications of cosigning a car loan before you commit.