You might be surprised to learn how easy it is to sell a car when you have a cosigner – even when your cosigner doesn't want you to sell. That's because, in a standard cosigner agreement, you own the car, not your partner.
Things can get complicated if you signed a side agreement, however. Reviewing the components of a typical vehicle cosigner agreement will help you determine if, and how, you can sell your vehicle when you have a cosigner.
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Typical Cosigner Agreement
Usually, when someone cosigns a loan for you, such as a parent, they are telling the lender, "I'm one of the parties to the loan and I agree to pay back the loan if the other party doesn't." You might be the primary loan signer and agree to make all of the payments until the loan is paid off, but if you can't or won't, the lender has a backup person who will take care of the loan.
People need cosigners because they might not have a high enough credit score or annual income, or can't verify their income.
Unless otherwise specified, the loan identifies you as the owner of the vehicle, with the other party simply cosigning (guaranteeing) the loan for the vehicle. In some cases, the cosigner might ask to be put on the title as a co-owner of the vehicle.
Side Agreements With Cosigners
To make their position more secure, a cosigner might ask you to sign a separate agreement stating that you can't sell the car without her agreement and signature. This helps protect the cosigner in the event your relationship goes south. For example, you might sell the car to a friend for a cheap price, then refuse to pay off the loan, sticking the cosigner with the rest of the loan balance. Some cosigners might require you to sign a side agreement so they can at least approve of the sale price of the vehicle if you decide to sell it or trade it in.
Read More: How to Replace a Loan Cosigner
Selling the Car
If you have a standard loan with a cosigner and no side agreement, you can sell the car as the owner, without the permission or signature of the cosigner. This is only true if you took title to the car. This would have occurred at the time of the sale. If your parents helped you buy your vehicle, find out if you are, in fact, the owner and where the title is.
People usually don't keep their titles in the car because if it's stolen, you'll have to take time to replace it. Police officers usually ask you for your driver's license, proof of vehicle insurance and car registration, but not your title when you're pulled over.
If you're selling the car in a private sale, getting cash, you might need permission from the auto loan company (which might be the dealership) that sold you the car – they will usually have a lien against a vehicle and you won't be able to sell it without their OK. You should also tell your cosigner of your plans as a courtesy.
Trading in Your Car
If you have a cosigner on a car, can you trade it in? The answer depends on a few factors. If you're trading in your car for another, you might have equity in your car you can use to help purchase the new car. If you have negative equity, meaning you still owe money on the car you're trading in, you can usually add that amount to the new car loan. If you don't need a cosigner, you zero out the balance of your loan and your cosigner no longer has any obligation.
Be Courteous to Your Cosigner
If you miss payments on your loan or make payments late, you can damage not only your credit history and score, but also your cosigner's. Talk to your loan company to see if they will report a late payment to a credit bureau if you're only late by a few days or a week.
If you know that you can't make a payment and your loan company is going to report the late payment, contact your cosigner and let her know. She might offer to lend you the money to make the payment, rather than have her credit damaged.
If you're selling the car, let the cosigner know in advance because this will affect her credit, even if you fully pay off the loan.