Can I Be a Co-signer on a Car Loan If I Live in a Different State?

by Ashley Mott Google

    No law or universal requirement exists to prevent a person residing out of state from co-signing a car loan for an in-state resident. However, assuming a financial responsibility from a distance carries with it a variety of risks. Before co-signing on a loan, familiarize yourself with the process to make the purchase of the vehicle and management of the loan as smooth as possible.

    Individual banks or financial institutions may set their own requirements for car loan transactions. When you are car shopping, one dealership may allow you to bring in a co-signer from out of state while another will not. You may encounter multiple financing options when buying a vehicle at a particular dealership. For example, dealerships offer in-house financing options but also allow you to purchase a car with a bank loan obtained independently. Your bank could allow you to buy the car with an out-of-state co-signer while the dealership's financing option does not. Some lenders may also have requirements stricter than needing an in-state co-signer, such as requiring that your co-signer also reside at your address.

    If a friend or family member asks you to be a co-signer, he either needs your help because he does not have a lengthy enough credit history to qualify for a loan, or his credit has been damaged due to past mistakes, such as not paying bills on time. This makes co-signing a complicated decision. When you co-sign for an automobile, you assume responsibility for the payments on the car and put your own credit on the line, so the person you are helping can meet the financial obligation for both the car and additional related expenses, such as insurance.

    If you decide to co-sign for an individual, your portion of the process is much like it is when purchasing your own automobile. The buyer, or you and the buyer, will decide on a vehicle, and the dealership or bank begins the approval process. Both your and the buyer's credit records are pulled. When you cannot visit the buyer for the purchase, the preferred lending institution will send you paperwork, typically via an overnight delivery method, authorizing a credit file pull. If your lending institution has an office in both locations, you may have to visit the local branch for this part of the process as well as to sign final papers when the loan is officially approved and the car is purchased.

    When you're signing your final paperwork for the loan financing, your name should appear on the car title as an owner alongside the buyer. Even if you do not plan to use the car, putting your name on the title ensures you have a legal right to the automobile. Also, obtain and keep a spare key for the vehicle in your files. If your friend or family member stops making payments on the car, having a key and a copy of the title will help you gain physical possession if you choose to exercise your right.