Buying a car is a financial burden for most people. So, what can you do when you need a car but can’t fully afford it? While car sharing is one way to get creative, the arrangement will vary depending on your circumstances and those of the person you’ll share with. Just don’t jump in blindly—there could be major legal and financial consequences for you if your co-owner gets in an accident or skips a payment.
Sharing a car with a family member is easy enough—simply add yourself to his or her insurance as a regular driver. The problem comes when you decide to share a vehicle with someone who isn’t a relative. Say your neighbor or partner is in a similar situation and you decide sharing a car is a good solution; many insurance companies won’t spring for adding nonrelatives to existing plans. That’s the primary reason people enter into co-ownership. But, it’s not the end of the story.
On the Lookout
The most important thing is that you trust the person you’re sharing with. You should know them well and have clear communication regarding any related financial issues. Once you own a car together, you’re both responsible for it—no matter who caused the accident or let a payment slip. You can buy a new car together, or you can buy a share of someone’s existing car. Keep in mind, this often comes with associated fees and taxes, varying by state.
If you’re buying a share, check for existing debts—also known as liens. While it’s normal to have liens from the financing loan company, it means the company also owns a share of the car and can repossess it if payments aren’t being made. Having many liens to different companies, especially car title loans, is a red flag indicating severe individual financial instability at best and irresponsibility at worst. You might want to reconsider co-owning a car with that person.
There are two ways to set up the legal framework for co-ownership. Joint tenancy means you both own it, but if one person dies, the other inherits it automatically. Tenancy in common means you both own it, but if one person dies, their share can be left to someone else. You must agree to the terms of usage and get it in writing, signed by both of you, and then officially notarized.
Consider who will use the car more often and at what times. Take note if there will be an annual mileage cap and if this would hinder your ability to go out of town. Find out if you can bring your dog, how much gas you need to put in the tank, and how much of the insurance you’re paying. The more specific questions you can answer, the better, as this will avoid conflict down the road.
Co-owners shouldn’t be confused with co-signers. A co-signer has financial responsibility to cover the car in the event that payments lapse, but they have no claim over the property itself. Co-owners have that same financial responsibility, but they also own the car. Whether you’re a co-signer or a co-owner, if the other party fails to pay, it negatively impacts both credit scores.
Lastly, please note this is an overview of co-ownership and its associated laws, not advice from a legal professional. Remember, it pays to know your state laws as well as the history of the car and the financial responsibility of your co-owner. This type of ownership can be a solid solution to financial and transportation woes.