Many banks allow a loan's co-signer to live in a different state, although the purchase process may be prolonged as paperwork is mailed back and forth. Expect to prove your identity to the lender before your approval. Consider the risks associated with co-signing while out of state before you co-sign a loan.
Credit Application Process
If a dealership or lender allows you to co-sign for a borrower, it likely has to prove your identity before approving your loan. Expect to provide your license number and its expiration date. Also, ensure you are easy to locate after providing your credit application, as you may have to answer questions about yourself to prove your identity, which is obtained from past information listed on your credit report. These questions might apply to previous loans, mortgages, addresses or past names you've used that only you would know.
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Once approved, you must sign bank contracts. If the lender has agreed to accept your application, it will send you the loan contracts. Contracts require original signatures, so emailing or faxing copies is unacceptable. Expect the contracts to be sent through overnight mail with a return envelope. Although you should return the contracts promptly, read over what you're signing beforehand. The contract states the loan's approved rate and payment term and your liability for loan payments and insurance requirements.
Possible Insurance Requirements
Either you or the person you are co-signing for must maintain a full-coverage insurance policy. Beyond the risks of co-signing, you'll also have to make sure that the person you co-sign for keeps an active policy on the car throughout the term of the loan. Treat the purchase as your own, and purchase a gap insurance policy if the borrower did not put down enough money to increase equity in the car. Gap insurance covers the balance of your loan if the driver experiences a total loss, in which case the insurance company will pay the lender for the car's market value. Otherwise, you are liable for the loan amount.
If the borrower defaults on her loan, late payments are reported on your credit report. If the vehicle is repossessed, your credit score and future lending opportunities are affected, as well. You are liable for the loan's balance if the borrower does not pay. Before signing and returning contracts, find out the bank's contact process for late payments. Not all banks contact both owners. Make sure the bank contacts you so you are aware of any loan issues in the future, as you may not be aware of the borrower's financial situation if you live in a different state.