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.