Having a cosigner on an auto loan application can be a great way to improve your chances of getting approved for a car loan when you don't have good credit. They could also help you qualify for a lower interest rate.
How Cosigners Help You Out With Auto Loans
By lending you their good credit score, cosigners help you get approved for an auto loan. Since they have a good credit score, this improves your approval odds if your credit score isn’t the best.
When there are two people on the same car loan, lenders are more likely to extend financing. Additionally, cosigners promise to repay the auto loan if you can’t, so it can help you get approved despite your lower credit score.
If your credit score is subpar but not horrible, then a cosigner could even help you get a lower interest rate than if you were to apply by yourself. This isn’t a guarantee, but the cosigner’s credit score may allow you to qualify for a lower rate.
However, if your credit score is really rough, then a cosigner may only help you get approved for the car loan and your interest rate may still be higher than what you’d want.
Requirements of a Cosigner
Finding the right cosigner means a few things. Most importantly, a cosigner must have a good credit score. If you ask someone to cosign on an auto loan that has a similar credit score to yours (or worse), and it’s probably not going to increase your approval odds.
Consider your cosigner the last line of defense against default. A key requirement of a cosigner is that they have a qualifying income. Since cosigners promise to pay for the vehicle if you can’t, they must show they have the income to do just that. They also need to prove they have enough income available each month that can cover the car payment if it comes down to that.
Remember that cosigners don’t help you make the monthly payments and that their income isn’t added to yours to meet your income requirements – you and your cosigner both have separate income requirements that need to be met. If you need more income to pay for the vehicle you want, then consider a co-borrower.
Finding the Right Cosigner for a Car Loan
Many borrowers ask a parent or close family member to cosign for them, and it’s a common tactic new borrowers use to get their credit history started. Although, your cosigner doesn’t have to be a member of your family. A cosigner can be really anyone, as long as they meet the requirements and have a good credit score – they don’t even have to live in the same state as you!
Cosigners can be hard to come across, since it’s a big risk for someone to take. Cosigners don’t get any control over how you handle the auto loan, don't have ownership rights to the car, and their name is never listed on the vehicle’s title.
The biggest downside to being a cosigner? Their credit score can be negatively impacted by your payment history. If you start to miss payments or have multiple late payments, it reflects poorly on your credit and your cosigner’s. For this reason, many people shy away from cosigning on auto loans. If you ask someone to cosign for you, reassure them that their good credit score is safe in your hands.
Another Bad Credit Auto Loan Option
One of the best ways to increase your odds of getting approved for a car loan is to improve your credit score. Many borrowers feel stuck between bad credit and not being able to get approved for new credit. However, there are auto lenders that specialize in assisting borrowers to get the car loan they need.
Subprime lenders help bad credit borrowers get back on their feet with auto loans. One of the best ways to build your credit history is by taking on a loan that’s reported to the credit bureaus, since your on-time payments can boost your credit score. When you start a long-standing history of timely payments, it can do wonders for your credit.
Want to get connected to lenders that can work with your credit situation? Then look no further than Drivers Lane. We’ve gathered a nationwide network of dealers that have the resources bad credit borrowers need. Fill out our free car loan request form, and we’ll look for a dealership in your local area that’s signed up with subprime lenders.