If you’ve been denied vehicle financing because you have bad or no credit,* then an auto loan cosigner, or a co-borrower, may be what’s needed to get on the road and on with your life.
Each may boost your chances of approval and, if approved, better your loan terms. 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 I need a cosigner or co-borrower on a car loan?
- Auto loan cosigner – A cosigner is someone who guarantees to meet any missed payments and even repay the full loan amount should you fail do so, which provides a safety net for both you and a potential lender.
- Co-borrower – Adding a co-borrower (also known as a co-applicant) to your application means you’re applying for a joint auto loan. If approved, each borrower is responsible for repaying the loan and has the same rights to the use and ownership of the vehicle.
How much does a cosigner or co-borrower help on auto loans?
Improving your chances of approval is a big advantage in itself but, if approved with a cosigner or co-applicant, you may also benefit from a lower APR, larger loan amount or both. Co-applicants potentially have a greater effect on maximizing a loan amount as their combined incomes can reduce the debt-to-income ratio.
A cosigner or co-borrower might also be a big plus for your financial future. With such help, many consumers with no credit histories are able to get a foot on the credit ladder, while those with poor credit can rebuilt their scores. That means, next time, they may be able to qualify for a loan on their own.
Auto loan cosigner and co-borrower requirements
Who should you ask to sign on the dotted line? Often, a cosigner will be a family member, such as a parent, or a spouse or close friend. Creditworthiness is particularly important, but a range of other factors go into the mix when a lender makes a loan decision in these cases. Lenders will typically take a close look at the cosigner’s proof of income and their ability to pay the debt if needed.
Whether an auto loan cosigner or co-borrower is right for you will depend on your own situation, as well as how much risk the other party is prepared to take. With couples, for example, it may make most sense to apply for a joint auto loan.
Cosigner rights
Can a cosigner take the car? – While the cosigner is contractually committed to the loan, they have no rights to the vehicle. Even if they find themselves having to take over payments, they cannot take possession of the car.
Cases where the borrower defaults – The cosigner should be aware that if the borrower defaults on the loan, the lender can use the same collection methods against the cosigner as they would for the borrower, including asking for the full loan amount, garnishing wages and legal action. The lender can also approach the cosigner to collect a default payment before they approach the borrower. Failure to keep on top of the loan can damage the credit of the cosigner, as well as that of the borrower, and may affect their ability to get loans themselves.
In the event of bankruptcy – If the borrower goes through bankruptcy and loses their car, the cosigner may still have to pay any outstanding debt after the sale of the vehicle.
Co-borrower rights
With equal obligations to the financing contract and rights to the vehicle, the situation is simpler for a joint loan. However, the co-borrowers must agree in order to sell the vehicle, since both names are on the title and both signatures are required for the paperwork.
Apply for a loan online
If your credit history is bad or limited, don’t worry; RoadLoans accepts applications from people with all types of credit and offers the same quick and easy process. It takes just minutes to complete our short online application, whether as an individual or with a co-applicant, and you’ll receive an instant loan decision. You’ll notice the option to add a co-applicant at the bottom of the application page.
Apply for a car loan.
* “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.
Written by:
With 10 years of experience in auto finance, Rob Looker helps car shoppers find the right vehicles with the right financing so they can enjoy the road ahead. When he’s not creating content, he’s often behind the wheel, exploring new…
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