Does a co-signer have to be on the car insurance?

When a family member or friend needs help securing a loan to buy a car, you may be asked to co-sign the loan. While you will be responsible for the loan, agreeing to co-sign an auto loan will likely not affect your own auto insurance policy or the rates you pay.

Co-signing an auto loan likely won’t affect your insurance

Helping someone purchase a car by co-signing their loan is a commitment not to be taken lightly. However, co-signing 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 co-signing for, there should be no changes to your car insurance.

“Co-signing a car loan should not impact your own insurance premium, unless, of course, you decide to add the co-signed 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 co-signing for fails to make payments, your insurance should generally be unaffected.

Exceptions to the rule

There are a few specific exceptions to this rule. Your policy will be impacted if you live with the primary borrower on the loan and are already on the same insurance. 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, which will increase your premium.

Is a co-signer liable for accidents?

If the vehicle is in a collision or an accident, you are generally not responsible as a co-signer.

“Co-signing 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 co-signer.

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. But even if your co-owner isn’t found at fault for the accident, your premiums may still increase.

Being a co-signer vs. being a co-owner

A co-signer only has responsibility for the loan. The lender will contact you if there are late payments or the primary borrower defaults. Since a co-signer essentially acts as a guarantor for the primary borrower, you must pay the loan if the primary borrower is unable to. But that has no impact on your insurance.

You are only 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 co-signer, 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 co-signing 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.

The bottom line

Co-signing a car loan for a friend or loved one can significantly help the primary buyer. While there are risks for your credit as a co-signer, your car insurance should stay the same. But before taking this step, call your insurance company to determine if your policy will be affected.