Co-signing vs. co-owning a car: What’s the difference?

Written by

Rebecca Betterton,

Edited by

Pippin Wilbers,

Reviewed by

Mark Kantrowitz,

Expert verified

Published on February 05, 2024 | 3 min read

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Key takeaways

Co-signing and co-owning a car are two different ways to approach applying for a car loan with an additional borrower.
Co-signing means you are responsible for covering payments if the main borrower cannot, but you do not have any legal rights to the car.
Co-owning means both parties have equal ownership and financial responsibility for the car.
Both co-signing and co-owning can significantly impact credit scores, both positively and negatively.

Co-signing and co-owning a car are two different ways to approach applying for a car loan with an additional borrower. In both cases, the secondary borrower needs to have sufficient credit and income to support the loan on their own. But each has benefits and drawbacks, depending on what both parties are looking for.

Co-signing vs. co-owning a car

When you co-sign a car loan, you’re essentially promising to cover the monthly payments if the primary borrower can’t, yet you won’t hold any legal rights over the car. With co-ownership both the owner and the co-owner are named on the title, giving them equal rights and obligations towards the vehicle and the loan.

Co-signing for a car loan

Best for: Situations where an individual needs assistance in securing a loan, perhaps due to lack of a credit history or an insufficient credit score.

Co-signing for a car loan can aid the primary borrower in securing a car loan and potentially lower expenses with a better interest rate, provided the co-signer has a solid credit score. However, the co-signer risks being liable for payments if the primary borrower fails to pay and has no legal ownership over the car.

Benefits of co-signing on a car loan

Help qualifying: A co-signer can help a primary borrower qualify for a car loan they otherwise wouldn’t be qualified for.
Build credit: If the primary borrower can stay on top of payments, the credit of both the primary borrower and co-signer can be positively affected.
Reduce costs: If the co-signer has a very good to excellent credit score, the primary borrower can qualify for a lower interest rate and fees.

Risks of co-signing on a car loan

Responsibility for payments: If the borrower defaults, the co-signer is responsible for all loan repayments.
No legal claim: The co-signer is not on the title and has no legal claim to the car.

Co-owning for a car loan

Best for: If both parties will use the vehicle and want to share the financial responsibilities.

One benefit of having two names on the car title is favorable loan terms if both parties have a good credit score. However, it also implies equal access to the car and potentially elevated insurance charges. Both individuals must agree to sell or transfer ownership.

Benefits of co-owning a car

Safety for co-owner: The co-borrower has the legal protection of having their name on the title.
Better terms: If both borrowers have strong credit, the primary borrower may be extended better terms than if they applied alone.

Risks of co-owning a car

Equal rights: The co-borrower has equal rights to the car as the primary borrower. This means the co-owner must be involved in the sale or transfer of the car.
Insurance: Even if the co-owner doesn’t use the car, they will likely need to be on the insurance policy. This can mean higher costs for both involved.

How to choose between co-signing vs. co-owning a car

The main difference between co-borrowers and co-signers is the level of investment in the loan.

Co-borrowers have more responsibility and ownership than co-signers. Co-borrowing is best for people who both have good credit and want equal rights to the vehicle — such as a couple that wants to buy a car together.

On the other hand, a co-signer is best for a borrower who wouldn’t qualify for the loan at all, or needs help qualifying for a larger amount or lower interest rate.

How does co-borrower or a co-signer affect your credit score?

Both co-signing and co-owning a car can have significant impacts on your credit score. For co-signers, if the primary borrower is diligent in making timely payments, it can boost the co-signer’s credit score. However, if the primary borrower defaults and the co-signer doesn’t step in to pay, the co-signer is held responsible, and their credit score may suffer.

Co-owners, on the other hand, are equally responsible for the loan from the start. If payments are made on time, both parties’ credit scores can improve. But if one party fails to pay, both parties’ credit scores will drop.

How to prepare to co-sign or co-own a car

To be a co-signer on a loan, you’ll need to have a stable income and meet the credit score requirement set by the lender. The same is required for being a co-owner, because the credit of both borrowers is being considered.

What kind of conversation and preparations should the parties have?

Before deciding to co-sign or share ownership of a car, have a frank discussion about your and the primary borrower’s financial stability. You should both discuss and understand the legal and financial implications of your commitment. Make plans in case the primary borrower can’t make payments.

Make sure you understand what you’re getting into by reviewing and keeping a copy of the loan details. To avoid being blindsided by missed payments, ensure you’ll receive regular updates on the loan status and regularly check your credit report.

The bottom line

There are many reasons why you may choose to co-sign or co-own a car with another person. In either case, it is important that both parties are on the same page about what the relationship entails and what is expected from both of you.