Cosigning a Car Loan in Canada: What You Are Agreeing To
Updated: 2 days ago
Cosigning a car loan means signing the loan agreement alongside the borrower, so the loan is yours as well as theirs. If the payments stop, the debt is still yours to repay.
The Financial Consumer Agency of Canada treats cosigning as being a joint borrower, and says a joint borrower becomes equally responsible for repaying the unpaid balance.
Has your son or daughter in Lanark County been told they need a cosigner to finance a first vehicle for a job in Kanata? Here is what you would be agreeing to, and what to ask for before anyone signs.
Key Takeaways
The loan becomes the cosigner's responsibility as well as the borrower's. Read the agreement, and ask for your own copy of it and the cost-of-borrowing disclosure, before you sign.
Ontario has no cooling-off period on a vehicle contract.
Whatever the agreement calls you, cosigner or guarantor, you are taking on the debt.
A cosigned loan can appear on both people's credit reports, so a missed payment can count against both of you.
Whether a cosigner can come off the loan is set by the agreement and the lender. Paying the loan out ends it.
Talk through what happens if a payment is missed before anyone signs.
When the borrower is ready, they can apply for financing with Carleton Place Ford before coming in, on approved credit (O.A.C.).
What Does Cosigning a Car Loan Mean?
Cosigning a car loan means you sign the loan agreement with the borrower and take on the same debt. The federal consumer agency calls this being a joint borrower: someone who signs a loan agreement with one or more other people.
For vehicle financing, OMVIC, the province's vehicle sales regulator, puts it this way: "A co-applicant shares responsibility for the loan."
Does It Matter What the Agreement Calls You?
Whatever the agreement calls you, you are taking on the debt. Read which role it names, because lenders do not all use the same word for the second signer.
On credit cards, the federal consumer agency separates "co-borrowers," who can use the account and are equally responsible for the balance, from a guarantor, who cannot use the account but is still responsible for the balance.
Ontario's consumer protection law, in its rules for credit agreements, also treats a guarantor as someone other than the borrower.
Your agreement and your lender decide.
What Are You Agreeing To When You Cosign?
You are agreeing to be responsible for the loan, equally with the borrower. If a payment is missed, it is your missed payment too.
That is why the conversation about a missed payment belongs before anyone signs, while everyone is still on good terms.
Agree between you who pays, how you will hear about a missed payment, and what happens next.
Can Cosigning Show Up on Your Credit Report?
Yes, it can. A cosigned loan can appear on both people's credit reports, so a missed payment can count against both of you.
The federal consumer agency says negative information on a credit report includes accounts with late or missed payments. It also says lenders use your credit report and score to decide whether to lend you money and at what interest rate.
So the loan you cosigned can be part of what a lender sees when you apply for credit yourself.
If you plan to borrow for something of your own later, factor that in.
Why Would a Lender Ask for a Cosigner?
A lender may ask for a second signer when the borrower's application is not strong enough on its own, for example a young buyer with little credit history.
A second applicant may help strengthen a financing application, the vehicle sales regulator says. Whether one is needed, and whether it is enough, is the lender's call.
A parent asked to cosign is being asked to share the loan so the application may be stronger.
If the bigger worry is what happens when the borrower applies, Carleton Place Ford's guide to what happens when you apply with bad credit covers that question.
What Paperwork Should a Cosigner Ask For?
Ask for your own copy of the loan agreement and the cost-of-borrowing disclosure before you sign. In Ontario, the lender has to give the borrower a written disclosure of the cost of borrowing before the agreement is final.
The vehicle sales regulator says a spoken promise does not replace that written disclosure.
The federal consumer agency says the disclosure statement explains the total cost of borrowing and other important information.
Keep your copies somewhere you can find them for as long as the loan runs.
At a bank or federal credit union, each joint borrower has the right to the cost information and to the same ongoing statements, unless they agree that only one person receives them.
A cosigner who keeps receiving statements can see a missed payment early.
Those rights apply when the lender is a federally regulated financial institution, so it helps to know who the lender is.
Carleton Place Ford's guide to in-house financing explains how to find that out.
When Should a Cosigner Read the Agreement?
Read it before you sign, not after. Ontario has no cooling-off period on a vehicle contract, so the time for a cosigner to read the agreement is before signing.
The vehicle sales regulator also says to ask to review the information on the application before it is submitted, because that information needs to be accurate.
Its advice to car buyers is to read the entire agreement carefully, and that holds for a cosigner too.
If anything in the agreement is unclear, ask.
Questions to Ask Yourself Before You Cosign
Start with whether you could make the payments yourself if you had to. The federal consumer agency's advice before any borrowing is to check if you can afford payments now and if repayment costs change.
Then work through these questions with the borrower.
Could I make these payments myself if I had to? The debt is yours as well as theirs.
Which role does the agreement give me? Read the word it uses for the second signer.
Will I get my own copy of the agreement and the cost-of-borrowing disclosure? Ask before you sign.
Will I receive the ongoing statements? At a bank or federal credit union, each joint borrower has that right unless they agree that only one person receives them.
How would this loan affect my own plans to borrow? It can be part of what a lender sees when you apply.
What happens if a payment is missed? Agree on it now, between you.
Can a Cosigner Come Off the Loan Later?
Whether a cosigner can come off a car loan is set by the loan agreement and the lender. Paying the loan out ends it.
So read what your agreement says about it before you sign, rather than counting on a way out later.
How a payout works is covered in Carleton Place Ford's guide to transferring a car loan to another person.
If You Are the One Asking Someone to Cosign
Make the loan as easy to carry as you can, whoever signs. The federal consumer agency's general advice for a car loan is a vehicle that fits your budget, a down payment if possible, and the shortest term you can afford.
It also suggests looking at used vehicles as well as new.
Asking someone to cosign is asking them to share your debt, so give them time to read everything before they decide.
And make sure the person you ask sees the agreement and the cost-of-borrowing disclosure before they sign, too.
Remember the good part, too: the reason for all of this is a first vehicle, and the drive along Highway 7 to that job in Kanata.
You can browse our inventory of new and used vehicles at Carleton Place Ford to see what fits.
Already driving a vehicle you plan to trade? We put our appraisal of your trade in writing.
Applying for Financing With Carleton Place Ford
Apply for financing before you come in if you wish. With your consent, we can review options with participating lenders.
Approval, rate, term and payment depend on the applicant, lender and vehicle, and a credit-bureau inquiry may be required. Bring a driver's licence and proof of income if requested; lender requirements vary.
At Carleton Place Ford, we work with both prime and non-prime lenders, on approved credit (O.A.C.).
A joint application with a spouse or partner is welcome, on approved credit (O.A.C.).
Frequently Asked Questions
Is a Cosigner Responsible for the Loan If the Borrower Stops Paying?
Yes. Canada's federal consumer agency treats cosigning as being a joint borrower, and says a joint borrower becomes equally responsible for repaying the unpaid balance.
Does Cosigning a Loan Affect Your Own Credit Report?
It can. A cosigned loan can appear on both people's credit reports, so a missed payment can count against both of you when a lender decides whether to lend to you.
Can a Cosigner Be Taken Off a Car Loan?
Whether a cosigner can come off a car loan is set by the loan agreement and the lender, so read what it says before you sign. Paying the loan out ends it.
Is a Guarantor the Same as a Cosigner?
The roles can differ: Ontario's consumer protection law treats a guarantor as someone other than the borrower, and lenders do not all use the same word for the second signer. Whatever the agreement calls you, you are taking on the debt, so read which role it names before you sign.
What Should a Cosigner Get in Writing Before Signing?
Ask for your own copy of the loan agreement and the cost-of-borrowing disclosure before you sign. Ontario has no cooling-off period on a vehicle contract, so read both first.
Should You Cosign a Car Loan?
Cosign only if you could make the payments yourself if you had to, because the debt becomes yours as well as the borrower's. Before anyone signs, read the agreement and ask for your own copy of it and the disclosure.
Your agreement and your lender decide the details.
If you are the one asking, share this guide with the person you are asking.
As the borrower, your next step is to apply for financing with Carleton Place Ford, on approved credit (O.A.C.).
If you have questions, contact our team.
Visit us at 10441 Hwy 7, Carleton Place, ON K7C 0T6
Browse inventory, value your trade, apply for financing (on approved credit), book service, or contact the team.
Sales: (888)-910-3538 Parts: (888)-876-1102 Service: (877)-866-8810 Local: 613-257-3988
About the Author:
Kerry Irven is the Vice President of New and Used Automotive Operations for Heighton Automotive Group, a family-owned and operated automotive group serving communities across Eastern Ontario. Kerry began his automotive career in new-car sales, building his experience on the showroom floor and working his way through multi-store dealership operations.
With over 25 years in the automotive industry, Kerry has helped grow automotive businesses from one location with 40 to 50 vehicles in stock to more than 500 vehicles across 10 rooftops. His hands-on background in both new and used-vehicle operations gives him a practical understanding of what customers look for when shopping for their next vehicle.
Throughout his career, Kerry has always been actively involved in staff coaching and in understanding customer wants and needs, helping ensure the businesses he works with continue to adapt to what customers are truly looking for.
One of the most exciting chapters of his career has been the shift into modern automotive marketing, embracing new technology, transparent pricing, customer-first inventory strategies, and new ways to create a better vehicle-shopping experience.
Kerry has completed extensive automotive training, including certification through the Ontario Motor Vehicle Industry Council, involvement with the Used Car Dealers Association of Ontario, Canadian automotive dealer training, and multiple customer service courses.
Born and raised on a farm, Kerry has always valued family, hard work, and a practical, down-to-earth approach. Joining Heighton Automotive Group and working alongside Thomas Heighton and family, along with managing partners Kyle Lothian and Martin Gougeon, has allowed him to bring those same values into the car business. It has also allowed Kerry to continue following a simple philosophy: treat every customer exactly the way he would want to be treated.
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