If you’ve been denied financing for a vehicle because you have no credit or bad credit,* then an auto loan cosigner may be what’s needed to get on the road and on with your life.
A cosigner may help by guaranteeing to repay the loan should you fail to do so. “Having a cosigner on your loan gives your lender additional assurance that the loan will be repaid,” says the Consumer Financial Protection Bureau (CFPB).
And what a difference having your own transportation can make, whether it’s getting to college classes to further your education, getting to work on time and stress free, picking up the kids from school or taking a relaxing road trip wherever you choose.
Do you need a cosigner for a car loan? Some potential situations
No credit history
If you are a student or a young first-time car buyer, you may have no work history, never applied for a credit card or loan and so have no credit experience. If you then ran into a flat “no” when applying for a car loan, a cosigner means the lender might take a second look at approving your loan.
Alternatively, you might have a credit history but, unfortunately, it’s bad. The result might be a declined application here, too. But again, applying with an auto loan cosigner may mean a lender looks upon your application more positively and provides an approval.
What’s more, if approved for financing in such cases, having a cosigner on the application may improve the interest rate you’re offered.
Who to ask: Auto loan cosigner requirements
If an auto loan cosigner is right for your situation, then who should you ask, and what are their responsibilities?
Often a cosigner will be a family member, such as a parent, or a spouse or close friend, says the CFPB.
There are certain requirements they should typically meet, and of key importance is that they are creditworthy. A lender will rely on the co-applicant’s credit history and score when making a loan decision, advises the bureau, and if your own credit history is limited, “a cosigner with good or excellent credit could significantly lower your interest rate.”
Cosigning for a car comes with potential risks to be aware of. The cosigner, also known as a co-borrower, is obliged to meet any missed payments, and even pay the full loan amount if the borrower doesn’t pay. In addition, the cosigner’s credit, as well as that of the borrower, may be harmed if the borrower is late with payments or defaults on the loan.
Becoming a co-borrower doesn’t give that person a right to the vehicle, and the obligation to guarantee someone else’s loan may affect their own ability to get loans.
The Federal Trade Commission offers some further advice for anyone being asked to cosign for a car: “Make sure you know the terms of the contract and can afford to take on the payments before you agree to cosign for someone.”
Applying with a co-applicant
If you find yourself in one of these credit situations, consider applying online with an auto loan cosigner. You can do so in your own time and receive a decision in seconds. If approved, shop with the confidence of a cash buyer knowing the terms of your loan, and enjoy the freedom of your own vehicle.
* “Bad” or “Poor” credit generally is considered a FICO score around 600 and below by sources including the Consumer Federation of America and National Credit Reporting Association (reported by the Associated Press), Bankrate.com, Credit.com, Investopedia, NerdWallet.com and others. The Congressional Budget Office identifies a FICO score of 620 as the “cutoff” for prime loans. FICO scores are not the sole factor in lending decisions by RoadLoans.com and Santander Consumer USA.