Co-signing is a topic our readers ask about often. It's not surprising, given how complicated it can get when you tie your credit to someone else. The messiness of co-signing is actually a bit ironic, considering that it often seems like a simple solution (asking someone you're close to for help) to a big problem (not being able to get a loan).
For one of our readers, a co-signed auto loan led to some confusion. The anonymous commenter asked:
My parents put a down payment on a car for me after I got into an accident. They also co-signed for me, but I have been making the payments every month. Because they co-signed and put down a down payment, does that make it their car?
Car ownership generally goes beyond who paid for the vehicle, said John Van Alst, an attorney at the National Consumer Law Center.
"In many, if not most, states, ownership is determined by title," Van Alst said. "You have to go back and actually look: How does titling work in your state? Is that who determines who has an ownership interest in your state?"
Who's responsible for payments and who owns the vehicle are two different things, but the concepts often get mixed up. For example, if a couple is buying a car, they might apply for financing together, but may also want to have both of their names on the title. Not only would they both be responsible for making payments (and each of their credit scores would suffer if payments were missed), they would both have an ownership interest in the car. If the couple split up, property ownership would likely be decided in legal proceedings, Van Alst said. (However, if you live in a community property state, property acquired after a marriage, even only in one person's name, is considered joint property.)
Financing, Not Ownership
Generally, co-signing refers to financing, not ownership. If the primary accountholder fails to make payments on the loan or the retail installment sales contract (a type of auto financing dealers sell), the co-signer is responsible for those payments, or their credit will suffer. Even if the co-signer makes the payments, they're still not the owner if their name isn't on the title.
Unless our anonymous commenter's parents' names are on the title, it seems unlikely they would have an ownership interest in the vehicle. The reader may want to consult the paperwork and look up titling in their state.
There's another scenario Van Alst encounters. A lot of people come to the National Consumer Law Center because they intended to co-sign financing for a vehicle but ended up becoming the owner. Not only is their name on the financing and title, the name of the person who intended to be the owner is not on either item. This happens frequently and serves as a reminder to carefully read documents before signing.