Financing a car for someone else to drive is a generous act and, sometimes, a practical necessity, especially when it's a spouse, a child, or some other family member in need of a vehicle. However, you should know all the rules around financing and insurance — and your legal responsibility — before helping out.

Fronting: What not to do

You should absolutely avoid engaging in what’s called “fronting.” Fronting happens when someone with stronger credit finances a car and pretends to be the main driver or borrower, when in fact, someone else is using or paying for the vehicle. This act can occur in both financing and insurance, and in both cases, it’s considered fraud if you fail to disclose who the car is for.

Fronting may seem harmless, but it can actually have serious consequences:

• Repossession of the vehicle

• Damage to your credit or a criminal record

• Fines or legal penalties

• Insurance policy cancellation or denial of claims

Cosigning: The safer, legal alternative

If you intend to help someone else secure a car, there are legitimate ways to do it. Cosigning is the most straightforward option.

By cosigning, you share legal responsibility for the financing. Both of your credit histories are considered during the approval process, and both of you are liable for payments. While this gives the primary borrower a better chance of approval and can improve their credit if they make payments on time, it also puts your credit at risk if things go wrong.

Considerations for cosigners

Before cosigning, it's critical to understand what it’ll mean for your finances:

• Your credit is impacted: The financing appears on your credit report, affects your debt-to-income ratio, and can benefit or harm your credit depending on how it's managed

• You’re liable If the consignee misses payments; you’re responsible. Lenders will pursue you for any missed payments. Also, if the vehicle is seized and sold at auction for less than the borrowed amount, you could be responsible for the deficiency.

• You may not own the car Unless you request your name on the title, you won’t have ownership rights, even though you’re financially responsible

How to protect yourself

If you're determined to finance a car for someone else, we recommend you draft a written agreement. Having a signed document that outlines responsibilities can be beneficial in the event of conflicts. You could even go as far as having it notarized.

Additionally, if your name appears on the car title but you won’t be the primary driver, you’ll want to make sure that driver is listed on the insurance policy if you’re paying for that as well.

Need assistance with auto financing?

If you’re looking to help someone line up reliable transportation — and do so legally and transparently — exploring financing through one of Credit Acceptance’s 15,000+ participating dealerships could be a good option. Start the process today by pre-qualifying online.