Does A Repossession Affect a Cosigner?

If you co-signed with someone on a car loan and they stopped making payments on their car, chances are that the vehicle got repossessed. So, you might be wondering, what are the consequences for you if a car you cosigned for was repossessed? We will provide you with everything you need to know about how a repossession affects a cosigner?

Does a Repossession Affect a Cosigner?

Yes, repossessions do affect cosigners. If the primary borrower fails to make payments and gets a car repossessed, the repossession and miss payments will appear on both the primary borrower's credit report and the cosigner's credit report, negatively affecting both parties credit scores.

This is so because when you co-sign for another person's car loan, you are agreeing to be financially responsible for the repayment of the loan even if the primary borrower cannot make the payments. Any late payments or repossessions will show up on both the primary borrower's credit report and your credit report as the account status is reported on both of your credit reports.

If you were to review a copy of your credit report right now before any missed payments or repossessions, the account would appear on both your credit report as the cosigner and on the primary borrower's credit report. Any negative information will also be reported on both of your credit reports.

So, before cosigning for someone else's car loan, you should make sure that you understand the consequences in the event that the primary borrower fails to make payments on the account as both of your credit scores will be affected.

That said, if you've already cosigned for someone to finance a car and they've stopped making payments on the car, you are likely being contacted by the lender for repayment of the loan. You should not ignore the lender in hopes of the problem going away because this will only result in significant damage if the car gets repossessed.

The lender you're dealing with will likely give a few options that include:

  1. Bringing the account current to avoid late payments from being reported to the credit bureaus
  2. The option to pay off the car and obtain the vehicle
  3. Attend the auction and purchase the vehicle at the auction

Note: Even if your vehicle is repossessed and sold at the auction, if the vehicle sells for less than what is owed on the vehicle, both the cosigner and primary borrower will be liable for the deficiency. Typically, if there is a deficiency, your lender will sell the outstanding debt to a collection agency, and the collection agency will take on the task of collecting the debt from the primary borrower and the cosigner. If the cosigner and primary borrower do not pay the collection agency, the collection agency can cause more damage to both the primary borrower and the cosigner's credit by placing a collection account on both credit reports. A collection account can cause a significant drop in your credit score, and it remains on your credit report for 7 years from the date the first missed payment on the car loan.

When Does a Repossession Occur?

Before a vehicle is repossessed, usually the primary borrower stops making payments on his vehicle. Lenders usually give borrowers several chances to make the late payment in order to avoid repossession of the vehicle. If the borrower fails to make the payments, the lender will only then resort to repossessing the vehicle.

Most lenders will not repossess your vehicle after a single missed payment. Typically, they will wait until you've missed two or three payments before resorting to repossessing your car.

Lenders can repossess your vehicle because they own it until you've paid off the vehicle. So, if you fail to make your payments as originally agreed upon between you and your lender, your lender can repossess the vehicle to recover some of the money it loaned you to buy the vehicle. The lender is not required to give you notice before repossessing the vehicle.

Lenders typically repossess cars as an option of last resort because they are likely to sell it for less than what you, the borrower, owe on the car. That said, once a vehicle is repossessed, a repossession mark will be added to both the primary owner's credit report and the cosigner's credit report, lowering both of their credit scores.

Also, if the car sells for less than what the primary borrower owes on the car, the lender will likely sell the remaining amount to a collection agency. The collection agency will then attempt to collect the remaining amount from the primary borrower and cosigner. In the process of collecting the remaining account, the collection agency may add a collection account to your credit report, causing further damage to your credit.

How Does a Repossession Affect a Cosigner's Credit Score?

A repossession is added to a cosigner's credit report just as it's added to the primary borrower's credit report. Also, any late payments leading up to the repossession are added to the cosigner's credit report as they're added to the primary borrower's credit report. So, a repossession can have a significant negative effect on a cosigner's credit.

If a repossession is added to a cosigner's credit, it will remain on his or her credit report for 7 years from the date the borrower missed his first payment on the car loan.

After 7 years pass, the late payments and the repossession will be removed from the cosigner's credit report. As long as the repossession appears on the cosigner's credit report, it will continue to bring down his credit score until it's ultimately removed after 7 years.

A repossession cannot be removed from a cosigner's credit report unless there is something wrong with the information being reported on his credit report.

If there is wrong information being reported, the cosigner can file a dispute with the credit report showing the repossession to have it removed from his credit report.

After filing a dispute, the credit bureau will conduct an investigation to determine whether the information is valid. If the investigation reveals that the information is valid, it will remain on the credit report.

However, if the investigation reveals that there is an inaccuracy in the information being reported, it will be permanently removed from the cosigner's credit report.

Be Cautious Before Cosigning For Car Loans in the Future

You should be very cautious before co-signing for a car loan in the future because now you know that if the borrower stops making payments on his car loan, you, as the cosigner, will be liable for making the payments. If the borrower stops making payments and you, as the cosigner, don't make the payments, late payments and repossession will be added to both the borrower's credit report and your credit reporting, causing significant damage to both of your credit scores. This is so because when you cosign for a loan, you're taking responsibility for repayment of the money borrower in the event that the primary borrower fails to make payments on the car loan.

Frequently Asked Questions (FAQs)

1. How can a cosigner improve his credit after a repossession?

A cosigner can improve his credit score after a repossession by making all of the payments on his credit cards and remaining loans, reducing account balances, keeping old accounts in good standing open, and avoiding submitting too many credit card and loan applications within a short period of time. Follow these tips and you should see an improvement in your credit score. That said, if you have a repo on your credit report and late payments, your credit score may have taken a singnificant hit and so it may take 1 to 2 years for your credit score to recover.

2. Does a repo hurt the cosigner?

Yes, a repo hurts the cosigner as much as it hurts the main borrower. This is so because the negative information stemming for a repossession, including the repo itself and the late payments are reported on both the main borrower's credit report and the cosigner's credit report, causing significant to both parties credit.

3. Can a cosigner have a car repoed?

Yes, a cosigner can have a car repoed if the main borrower and the cosigner fail to make payments on the car.

4. Do late car payments affect cosigners?

Yes, if the primary borrower and the cosigner fail to make payments on a car, the late payments will show up on the cosigner's credit report, significantly lowering their credit score.


How Long Does a Repossession Stay On Your Credit Report For?

If your car has been repossessed, you might be wondering, how long will a repossession stay on your credit report for? This post provides you with everything you need to know about repossessions and how long they will affect your credit score for.

How Long Does a Repossession Stay On Your Credit Report?

A repossession, whether voluntary or involuntary, stays on your credit report for 7 years from the date you missed your first car payment. After the 7 year period, the repossession will automatically be removed from your credit report. That said, as a repossession ages, its impact on your credit score will lessen until it's ultimately removed from your credit report after 7 years.

If more than 7 years have passed since your repossession, and your repossession hasn't been removed, you can file a dispute with the credit bureau showing the repossession to have it permanently removed from your credit report.

That said, people often mistakenly believe because they engaged in a voluntary repossession that the repossession will not appear on their credit report. But, the reality is that both a voluntary repossession where you willingly surrender your car and an involuntary repossession both have the same impact on your credit and remain on your credit for 7 years.

So, you might be wondering, when does a repossession occur? A repossession occurs whenever a persons stops making timely payments on his or her car loan. If you miss a certain number of payments, and stop communicating with your lender, your lender will likely contact a towing company and ask them to retrieve the vehicle from you. After they take possession of the vehicle, they will likely auction it off to recover some of the money that you owe them.

The reason that lenders are able to take back your vehicle stems from the fact that your lender owns the vehicle until you've finished making payments on it. If you fail to make your payments, the lender can repossess the vehicle and sell it to recover some of the money that you owe them.

Voluntary and Involuntary Repossession Stay On Your Credit Report for 7 Years

Voluntary repossessions and involuntary repossession remain on your credit report for 7 years from the date you missed your first payment. When your vehicle is repossessed, this means that you failed to make payments on your account up until the point where your vehicle was repossessed. In this case, your entire car loan account will be removed from your credit report within 7 years of your first missed payment. The account will be automatically removed and there is nothing else that you need to do to have it taken off your credit report.

When you look at your credit report, don't let other dates confuse you as to when the account will be removed from your credit report. For example, if you pull a copy of your credit report, you will often see the following dates: (1) account open date, (2) account closed data, (3) date of last payment, and (4) date account was updated. None of these dates have any bearing as to when the repossession will be removed from your credit report.

Remember, your repossession will be removed from your credit report within 7 years of your first missed payment. That's all you need to know to determine when the repossession will fall off your credit report.

Does a Repossession Affect Your Credit Score?

Yes, both a repossession and the events that led up to the repossession can have a significant negative impact on your credit score. For example, if you missed some of your car payments before the repossession occurred, late payment marks were likely added to your credit report, significantly lowering your credit score.

Additionally, once a repossession mark is added to your credit report, it will cause additional damage to your credit. The higher your starting credit score, the bigger the drop would have been when late payments were reported and when a repossession was added to your credit report.

Of course, the impact a repossession has on your credit score is different from one person to another, depending on what was already on your credit report. If you had bad credit to start with, maybe not much has changed. But, if for example, you had a flawless credit history, repossession and late payments can destroy your good credit.

Can You Remove a Repossession From Your Credit Report?

It should come as no surprise that a repossession is a serious derogatory mark that can cause significant damage to your credit. If the repossession was valid, meaning there are no errors in the information that's being reported on your credit report, you will not be able to remove the repossession from your credit report.

However, if the repossession or your account contains negative information that is wrong, you can file a dispute with the credit reporting bureau showing the information to have it removed from your credit report.

After you file a dispute, the credit bureau has 30 days during which to conduct an investigation to determine whether the information is accurate. If the investigation reveals that the info is incorrect, it will be permanently removed from your credit report. However, if the investigation shows that the information is correct, it will not be removed from your credit report.

How to file a dispute to have wrong information removed from your credit report?

  1. Review your credit report
  2. Identify the wrong information
  3. Gather evidence to support your claim that the information is wrong
  4. File a dispute with the credit bureau reporting the wrong information
  5. Submit the evidence you have supporting your claim
  6. Wait for the credit bureau to conduct its investigation
  7. The credit bureau will provide you with a decision

How to Prevent a Repossession?

People often believe that ignoring vehicle payments when they cannot make them can make the problem go away. However, if you anticipate that you will be unable to make your monthly payments on time, you should not ignore calls and letters from your lender. Communicating with your lender can help you avoid late payments being reported on your credit report and a repossession from occuring.

In fact, many auto lenders may allow you to skip a payment or two if you explain your situation to them. This can give you the breathing room necessary to get back on track for making payments on your account.

That said, if your lender does allow you to skip two payments, you're not off the hook for the payments. Your lender may move the two payments to the end of your loan, and may even charge you a small fee for allowing you to skip the payments.

The key here is communication. Don't ignore calls and letters from your lender because if you do, your lender will eventually repossess your car if you've missed enough payments on your account.

Can a Repossession Be Removed From Your Credit Report?

A repossession can be removed from your credit report if there is wrong information being reported on your credit report. You can file a dispute to have wrong information removed from your credit report. However, if the repossession is valid and the information being reported is accurate, chances are that you will not be able to have it removed from your credit report.

How Many Points Does a Repossession Drop Your Credit Score?

A repossession and negative payment marks associated with it can drop your credit score by over 100 points.

Do You Still Owe Money After a Repossession?

You may still owe money even after your car has been repossessed. When your car is repossessed, your car lender will likely take your vehicle and send it to an auction to recover some of its money. Of course, most of the time, your auto lender will not be able to sell the vehicle for the amount of money you owe on the car.

If your car sells for less than what you owe, your lender will come after you for the remaining amount of money. Some lenders will sell the remaining amount of money that you owe to a collection agency. You will then have to deal with the collection company to satisfy the outstanding amount that's due. You should not ignore a collection company because it can place a collection account on your credit report, causing further damage to your credit.

For example, if you owe $14,000 on your car and your lender is only able to sell it for $10,000, the lender may sell the remaining $4,000 debt to a collection agency. The collection agency will then add a collection account to your credit report for the remaining $4,000.

A collection account can cause significant damage to your credit. So, avoid it if possible.

Paying off a collection account will not remove it from your credit report. A collection account will remain on your credit report for 7 years from the date you first missed your car payment. After the 7 year period, it will automatically be removed from your credit report.

How Long Does a Voluntary Repossession Stay On Your Credit Report?

A voluntary repossession remains on your credit report for 7 years from the date you missed your first payment. Unfortunately, voluntarily surrendering your vehicle will not prevent a repossession from appearing on your credit report.

How Long Does An Involuntary Repossession Stay On Your Credit Report For?

An involuntary repossession remains on your credit report for 7 years from the date you missed your first payment on your car loan. After the 7 year period, the repossession will be removed from your credit report.

Can You Finance a Car With a Repo On Your Credit Report?

It may still be possible to finance a car even though you have a repossession on your credit report. However, finding a finance company will be significantly more difficult, and if you're approved for an auto loan, chances are that your terms will not be very good. You may be charged a very high interest rate because the lender is taking a higher risk by lending you money to buy a car since you've defaulted on making car payments in the past. If you have any general questions or comments, please feel free to leave them in the comments section below.


What Happens to a Cosigner When a Car is Repossessed?

If you were a cosigner on a car loan or car lease, and the owner of the car defaults on the loan, causing the car to be repossessed, you might be wondering, what happens to the cosigner when the car is repossessed? We will answer this question in much detail below.

What Happens to a Cosigner When a Car is Repossessed?

When a car is repossessed, the cosigner is just as liable for the repossession as is the person who financed or leased the vehicle. So, if the borrower fails to make payments on his car, the late payments will be reported on both the credit of the borrower and the cosigner, causing significant damage to both credit scores. Furthermore, a repossession will appear on both the main signer and the cosigner's credit report, causing further damage to both credit scores.

This is so because when a cosigner cosigns a loan, he is agreeing to be responsible for repaying the debt in the event that the borrower fails to make payments on it. When the primary borrower fails to make payments on his car loan, the lender will come after the cosigner for repayment of the debt.

Usually, when a car is repossessed, the lender will take possession of the car, sell the vehicle, and come after the borrower and the cosigner for repayment of the deficiency. The deficiency is the difference between what the borrower owed on the vehicle and how much the vehicle was sold for.

For example, if the borrower owed $14,000 on his car, and the lender was able to sell the car for $10,000, the lender will come after the borrower and the cosigner for the deficiency (remaining $4,000). This is usually the case because lenders are typically unable to recoup the full amount owed on repossessed vehicles.

If the borrower and cosigner do not pay the deficiency, the lender may sue both the cosigner and the borrower for the remaining deficiency, or the lender may sell the deficiency (remaining amount owed) to a collection agency. The collection agency will then aggressively attempt to recoup the remaining amount from the cosigner and the borrower.

What Happens to a Cosigner's Credit When a Car is Repossessed?

When a car is repossessed, a cosigner's credit will sustain significant damage as if he had taken out a loan to purchase the car himself. This is so because when a cosigner co-signs a loan, he is agreeing to make the payments in the event that the main borrower fails to make them. As such, any late payments, defaults, and repossessions will appear on the cosigner's credit report just as they would appear on the borrower's credit report, causing significant damage to both the borrower and the cosigner's credit scores.

That said, not only will the repossession appear on your credit report, other events that lead up to the repossession may be added to the cosigner's credit report. Such events include the following:

  • Late payments
  • Defaulting on the loan
  • Collections Account
  • Court judgments

How Long Does a Repossession Remain On a Cosigner's Credit Report?

A repossession will remain on a co-signer's credit report for 7 years from the date that the borrower became delinquent on making his car payment. After the 7 year period, the repossession will automatically be removed from the cosigner and borrower's credit report.

In the event that a repossession is not removed after 7 years, you can file a dispute with the credit reporting bureau reporting the repossession, asking them to have it removed because more than 7 years have passed since the borrower became delinquent on the car payments.

Note: A repossession will have the biggest impact on the cosigner's credit score when it is first reported. As the repossession ages and more times passes since the repossession first appeared on your credit report, its effect on your credit score will lessen. Typically, you should see a substantial improvement in your credit score within 2 years of the repossession being added to your credit report. Once the repossession is removed from your credit report, it will no longer affect your credit score.

How Does a Car Repossession Work?

When a borrower defaults on his car loan, usually the lender will give the borrower several chances to make payments on the loan. If the borrower fails to make payments on the loan, the failure will trigger the default terms in the car loan agreement. Usually, when a default is triggered, the loan contract gives the lender the ability to repossess the vehicle to satisfy the outstanding debt.

Usually, a person's car is not repossessed immediately after missing a single payment as lenders give borrowers a chance (usually up to 3 months) to make payments and get out of default. However, some lenders will begin the repossession process immediately after a missed payment. The amount of time it takes the lender to begin the repossession process can usually be found in the loan or lease agreement. Some lenders will act immediately, attempting to repossess a vehicle as soon as the borrower misses a single payment, while other lenders will attempt for weeks and months to collect the outstanding amount.

Repossessions are possible because the lender owns your vehicle until the vehicle is completely paid off. This is so because lenders almost always use the vehicle as collateral for the loan, allowing the lender to repossess (take possession) the vehicle as soon as you become delinquent on paying your loan.

In most states, the lender is not obligated to give the borrower advance notice that it is going to repossess your vehicle. For example, if you're out shopping and you've missed several payments on your car loan, the lender can send a tow truck to tow the car from the shopping center's parking lot without giving you advance notice.

That said, lenders are not thrilled when they have to repossess a vehicle, so it's usually a bad situation for both the lender and the borrower. Repossessions are bad for the borrower because the lender will likely sell the car for less than what the borrower owes on it.

Repossessions are bad for the borrower and cosigner because the repossession will appear on of their credit reports, causing significant damage to their credit scores. Furthermore, both the borrower and the cosigner will be liable for paying the remaining amount on the loan. Also, if the remaining debt is sold to a collection agency, the collection agency will come after the borrower and the cosigner for the deficiency, which is the difference between what the lender sold the car for and what the borrower owed on the loan.

Is a Cosigner Liable for a Repossession?

Yes, a cosigner is just as liable for a repossession as is the borrower. This is so because when the cosigner signs a loan agreement, he or she is agreeing to make payments on the loan in the event that the borrower fails to repay the loan on time. So, although you may have thought that merely signing your name on a friend or relative's loan agreement only helps them obtain the loan, you're wrong because you are basically signing, agreeing that to take responsibility for the loan if the borrower fails to repay it on time.

So, it should be clear that if the borrower defaults on the loan and vehicle gets repossessed, you're equally liable for the missed payment, the repossession, and the deficiency. So, if the borrower fails to make payments on the loan and you want to avoid damage to your credit, you should step in and make payments on the loan.

So, you might be asking yourself what is a deficiency balance? A deficiency balance is amount that you owe if a lender sells your car and the amount the car sold for is less than what the borrower owes on the car. A cosigner is responsible for the deficiency balance.

For example, if you cosigned a loan for your brother, and his vehicle gets repossessed for non-payment. If the lenders sells his vehicle for $10,000 and he owed $14,000 on the vehicle, the deficiency balance would be $4,000. Both the borrower and the cosigner are liable for the remaining $4,000 balance.

If there is a deficiency balance, one of two things may happen: the lender may try to collect the deficiency balance from the borrower or cosigner, or the lender may sell the debt to a collection agency, which will then come after the borrower and cosigner for the outstanding amount that's due.

To avoid problems, you should consider negotiating with your lender or the collection agency to settle the deficiency balance. If the lender has not yet sold the debt to a collection agency, you should try negotiating with the lender because if the debt is sold to a collection agency, the collection agency can cause additional damage to your credit score by reporting a collection account on your credit report.

How Can a Cosigner Improve His Credit Score After a Car is Repossessed?

A cosigner can improve his or her credit by following the tips below:

  1. Payments - Even if you've had a repossession and late payments added to your credit report, make sure that you continue to keep your other accounts in good standing. Your payments history accounts for 35% of your credit score, so continuing to make your payments on time will improve your credit score.
  2. Reduce Balances - Reducing the balances on your accounts will help your credit score. This is so because your credit utilization (how much of your available credit you're using) accounts for 30% of your credit score. So, paying down balances will dramatically improve your credit score. You should always strive to keep your credit utilization at or below 10% and never exceed 30%. If you exceed 30% credit utilization, your credit score will drop.
  3. Credit Applications - You should refrain from submitting too many applications for credit cards and loans. This is so because every time you apply for a credit card or loan, a hard inquiry is added to your credit report, reducing your credit score. Although a single hard inquiry will not drop your credit score by much, having too many hard inquiries will significantly reduce your credit score.
  4. Old Accounts - If you have old accounts that are in good standing open, you should keep them open. This is so because the average age of your accounts impacts your credit score. the older your accounts, the better your credit score will be.
  5. Review Credit Report - You should periodically check your credit report. This will help you detect any inaccuracies that appear on your credit report. For example, if a negative mark or account that does not belong to you appears on your credit report, you should dispute it to raise your credit score.