My nephew asked me to co-sign a car loan. He was in an accident that totaled his car. Does the bank have the right to come after me if the payments aren’t made? 

What if I Co-Sign a Loan and the Car Gets Totaled?

TRANSCRIPT: Hi, I’m Attorney Ben Schwartz.

Hi, I’m Attorney Ben Schwartz.

Today, we’re going to answer a question from Lisa in Seaford, Delaware. Lisa says: “I co-signed a loan for my nephew to get a car. He ran off the road and had a bad car accident. It’s totaled. He never paid his insurance, and the bank wants me to pay for the rest of the loan payments on the car. Shouldn’t they go after my nephew first?”

If you co-signed for your nephew to get the car and he’s not paying the bank – and there was no insurance to pay off the car after it got totaled in a car accident – then you are on the hook to the bank. You have agreed to pay the bank if your nephew does not make good on his loan. I assume that he didn’t pay the bank. They have the right to go after you for the remaining balance. It’s an unfortunate thing. As attorneys, it’s something that we see all the time.

I want to offer something for you to think about, Lisa. In the future, you should never co-sign for someone’s loan unless you are willing to pay off the loan yourself. In other words, if this is your nephew that you love more than anyone in the world and you want to give a gift to him and you want to give him a car…then that is a noble and wonderful thing. If that is your situation, then you should feel free to co-sign the note. That’s not how it happens, though and people go to a car dealer because they want to buy a new car. The dealer helps them find a car that they’re ready and willing to buy but unfortunately are not able to. When the salesman at the car dealership runs their credit app, the credit gets declined. They can’t get a loan on their own to buy the car they want. The salesman asks the person to think about who to call. Who might be willing to co-sign a loan for you, so that I can sell you this car? They think who is going to co-sign this for me? In this case, your nephew called you.

As an attorney, I often see these types of cases. If a family member or a friend calls you and says, “Hey, I’m trying to get this car. Can you co-sign the loan for me?” The question you really should be asking yourself is, “Do I love this person so much and do I have the wherewithal and the finances to make a gift to them by way of this car?” If the answer to that question is no, then you have no business co-signing a note. When you co-sign for a loan, you’re saying that you are responsible and willing to pay for this person’s debt in the event that he or she can’t.

I really don’t think that people should co-sign loans for family and friends if they don’t have the money. If you don’t have the credit, then you shouldn’t be buying a new car. I would suggest you build up your credit. Go to a credit repair agency. Pay your bills on time. Develop a good credit score, and buy your own car.

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Thanks for watching!