Key takeaways
- Cosigning an auto loan will not usually affect your auto insurance policy or the rates you pay.
- If you are a cosigner for an auto loan, you are not liable for any accidents or damages caused by the primary borrower.
- The primary impact to your insurance will be if you are also on the policy that covers the vehicle — or if you are the co-owner.
When a family member or friend needs help securing a loan to buy a car, you may be asked to cosign the loan. While you will be responsible for any missed payments, agreeing to cosign an auto loan will likely not affect your auto insurance policy or the rates you pay.
The cosigner is not responsible for insurance
Helping someone purchase a car by cosigning their loan is a commitment not to be taken lightly. However, cosigning a loan is unlikely to affect your auto insurance policy or the rates you pay for coverage. If you don’t plan to drive the vehicle that you are cosigning for, you’re not required to be on the insurance policy for the new vehicle. Additionally, there should be no changes to your car insurance.
“Cosigning a car loan should not impact your own insurance premium unless, of course, you decide to add the cosigned vehicle to your own insurance, in which case your premium will go up to reflect the additional vehicle,” says Douglas Heller, director of insurance for the Consumer Federation of America and a nationally recognized insurance expert.
So, while there may be other consequences if the person you are cosigning for fails to make payments, you are not required to be on the car insurance policy for the new vehicle, and your insurance should be unaffected.
Exceptions to the rule
There are a few specific exceptions to this rule. If you live with the primary borrower on the loan and are already on the same insurance, your policy will be impacted. As Heller states, the policy premium will go up to reflect the additional vehicle. But even driving the car regularly could mean you need to add it to your insurance, and that will increase your premium.
Is the cosigner liable for accidents?
If the vehicle is in a collision or an accident, you are generally not responsible as a cosigner.
“Cosigning for a car loan doesn’t make you liable for the primary borrower’s bad driving, DUI or even driving without auto insurance,” says Steve Sexton, a financial advisor and CEO of Sexton Advisory Group.
However, the limits of responsibility change if your name is on the vehicle’s title as co-owner — which would be the case if you were a full co-applicant on the loan, not just a cosigner.
In this case, you may be liable for damages in an accident if the driver of the vehicle you co-own is found to be the party responsible or the one who caused the accident. You could also be liable if the accident results in a lawsuit, and your premiums may still increase even if your co-owner isn’t at fault for the accident.
Being a cosigner vs. being a co-owner
A cosigner is only responsible for the loan. The lender will contact you if there are late payments or if the primary borrower defaults. Since a cosigner essentially acts as a guarantor for the primary borrower, you must pay the loan if the primary borrower is unable to manage their auto loan. But taking this step does not mean you are also required to be on the car insurance policy for the vehicle and it should not impact your own car insurance.
You are a co-owner of a car if your name is listed on the vehicle’s title. Co-owners have an equal stake in the vehicle and are equally responsible for keeping the loan payments current if a loan is used to purchase the car. That means a co-owner will also need to list the vehicle on their insurance, whether they drive the vehicle frequently or not. Ultimately, that means an increase to your policy premium.
As a cosigner, you will not have any legal ownership rights or stake in the vehicle, and your name will not be listed on the vehicle’s title. However, not every lender offers a cosigning option. Some may only allow a joint application, making you equally responsible for the loan and the vehicle. Your insurance company will need to be notified — since you will be on the vehicle’s title — and your insurance may be affected.
Bottom line
Cosigning a car loan for a friend or loved one can significantly help the primary buyer, especially if they only qualify for a bad credit car loan. While there are risks for your credit as a cosigner, and you could end up responsible for making the loan payments, your car insurance should stay the same. But before taking this step, call your insurance company to determine if your policy will be affected.
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