Can cosigning a car loan affect your credit?

Quick insights

• A cosigner is someone who contractually agrees to cover repayment of a loan if the primary account user defaults on their payments. 
• Cosigning a car loan itself may not impact your credit, but it may have implications for your credit down the line.
• Resources like Chase Credit Journey^® can help you check and even improve your credit score.

If someone asks you to cosign a car loan, you may wonder how this could impact your credit. It can feel great to help another person, but nobody wants to put their credit at risk. Here we explore what happens when you cosign a car loan.

How to cosign a car loan

Let’s explore the steps for cosigning a car loan to give you an idea of what you can expect. First, consider what defines a cosigner. When you become a cosigner, you contractually agree to cover repayment of a loan or credit account if the primary account user doesn’t make payments.

• To cosign a car loan, lenders may require you have a high credit score. So, you may want to assess your standing before cosigning. With Chase Credit Journey, you can see your credit score for free and without impacting it.
• In order to cosign, you often must provide proof of your ability to pay a car loan in case the primary account holder neglects to cover the payments. That could mean having a minimum income or assets.
• The final step for cosigning a car loan is usually signing a contract. This includes an agreement to cover the entire auto loan in case the primary account holder does not make the required payments.

How does cosigning impact the cosigner’s credit score?

As discussed above, a cosigner contractually agrees to cover repayment of a car loan if the primary account user defaults on their payments. The worst-case scenario may be that the primary car owner doesn’t make the payments, because the loans repayment process may affect your credit. If the primary account holder pays on time, it may help boost your credit. But if they don’t make payments, then this may have a negative impact on your credit.  Payments (or lack thereof) on this loan can show up on your credit report, which can impact your credit score.

Pros and cons of cosigning a car loan

Let’s weigh the positive and negative aspects of cosigning an auto loan. Credit score can be one factor to consider, but it’s certainly not the only one.

Pros of cosigning a car loan may include:

• If you maintain communication with the lender and primary account holder, you can stay aware of the payment status and thus on top of any potential impact to your credit. Tools in Credit Journey^® can also help raise your awareness of new credit activity with alerts.
• When payments go through as contracted with the lender, cosigning a car loan can help the primary account holder in many ways. They not only get a car but can also start to build upon their credit.
• Helping another person as a cosigner on a car loan can also help improve your own credit in some cases.  It may add a new account type to your credit mix that could also enhance your payment history.

Cons of cosigning a car loan can involve:

• There are cases when a cosigner needs to make a down payment on the car to establish their willingness to invest in this car purchase to the lender. This can be required regardless of the primary account holder’s down payment on the vehicle.
• Being a cosigner may affect your credit score if the car owner doesn’t make the payments. No matter what happens with a loan you cosigned, even if you end up paying the entire amount, you have no right to the car, and it will remain the primary account holder’s property.

In summary

It may be kind and generous to cosign an auto loan for a friend and family member, but it can also put your credit at risk. Before making a decision, it may be beneficial to check your credit for free with Chase Credit Journey to help give you some insight into your current credit standing.