John Roska: On co-signing a car loan

Q: I co-signed a car loan for a roommate. I never used the car. When she stopped paying, they repossessed and sold the car. Now, the finance company says they'll sue me for what's still owed. Am I liable if I never used the car?

A: If you never used the car, there's two ways you can be liable: your name's on the title, or you signed as a guarantor. If the creditor can prove either — or that you used the car — you could be liable.

When two people sign a car contract, it can be tricky to tell who's liable, and when. "Co-signers" provide multiple targets for creditors to aim it. A co-signer's actual liability, though, depends on details like their relationship to the other person, their relationship with the vehicle and its title, and exactly what they signed.

The law that murkily spells this out is the Illinois Motor Vehicle Retail Installment Sales Act. When more than one person signs a car contract, that law refers to them broadly as "co-signers."

The Act says co-signers can be primarily liable, or secondarily liable.

If you're primarily liable, you can be sued first. If you're secondarily liable, you can't be sued until the co-signer with primarily liability has been sued without success.

You're primarily liable if you're a specific kind of co-signer: a co-buyer. Then you're liable just as if you're the only person on the contract, without a co-signer. Co-buyers can be sued first.

Somewhat surprisingly, signing as a "co-buyer" doesn't necessarily make you a co-buyer. Only certain co-signers can be real co-buyers: parents; spouses; if your name's on the title; or if you actually use the vehicle.

How you sign, then, isn't important. What makes you a true co-buyer is your relationship to the other co-signer, your use of the vehicle, or your name on the title.

So, friends or roommates who co-sign car loans aren't primarily liable as co-buyers if they didn't use the car, and weren't on the title.

If you signed something saying you were going to use the car, you may not be able to prove you didn't. But without a written acknowledgement like that, the creditor may have a tough time proving you qualify as a co-buyer who "receives the vehicle."

If you're not a co-buyer, you could still be secondarily liable as a guarantor. You'd then be backup if the creditor can't collect from the buyer who's primarily liable.

But, you're only a guarantor if you signed 2 different documents that clearly said you were, using the magic language required by the Act.

The installment contract that both co-signers sign can identify one as a guarantor. If so, then that guarantor must also sign a separate "Explanation of Guarantor's Obligation." Among other things, that explains that "Your obligation arises only after the seller or holder has attempted through the use of the court system to collect this amount from the buyer."

If you're not a co-buyer, and not a guarantor, then you're the rare co-signer who's not liable.

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