If you have damaged credit and need to buy a car, you may consider the idea of getting a friend or family member to act as a co-signer on your loan. It seems easy enough, right? You will simply be "borrowing" their good credit to help you get loan approval. What could go wrong? Unfortunately, there are some significant risks attached to co-signing. So, make sure that your candidate for co-signing understands the potential hazards involved.
Why Co-Signing is not for Everyone
While the person whom you ask to co-sign may truly want to help you out, taking on this kind of responsibility might be more of a burden than they wish to bear. There are several reasons why they may want to think twice before committing themselves to your loan.
- The loan will essentially be their loan too. It should immediately be made clear to the co-signer that they are not merely being asked to vouch for you. In addition to allowing their credit history to be used, they are also agreeing to pay the debt if you don't.
- Your tardiness will hurt their credit score. Even if you make all of your payments, if you pay late, both your credit rating and theirs will be brought down. This could be a very unpleasant surprise for your co-signer if they go to apply for a loan or line of credit and discover that their credit score is not what they thought it would be. Depending on the severity of the damage, they could have to accept a higher interest rate or they could even be denied.
- Their credit score could suffer no matter what. This is probably the worst thing about co-signing, and the one factor that most people don't think about. You could pay off your loan without a single glitch, and your co-signer may still suffer credit score damage. How? Remember that your loan will be their loan too. The amount that you finance will increase their debt-to-income ratio. This means that they could have a harder time getting a loan for themselves while you are in the process of paying off your loan.
- You could destroy your relationship. You probably have a good relationship with the person whom you will be asking to co-sign. This person could be a parent, a favorite aunt, a significant other or a close friend. If you make late payments or cease to make payments on the loan altogether, you will put your co-signer in a financial bind. Will they ever be able to forgive you? Will you be able to forgive yourself? Co-signing can be toxic to relationships if it goes badly.
If you and your co-signing candidate do decide to proceed with the arrangement, please make sure that both of you fully understand what might be at stake. Excellent communication will be vital during the loan repayment period. Basically, if you run into any kind of trouble, let your co-signer know immediately. Then, they'll have the opportunity to help if possible. If you decide that using a co-signer is too risky, there are other ways to get approved for an auto loan.
No Co-signer, No Problem
If you have bad credit and no co-signer, you can still get auto financing. Drivers Lane has been assisting car buyers with credit issues for almost two decades. We can help you too by connecting you with a local dealer who is qualified to work with your situation. You may even be able to purchase your vehicle with little or no money down.
Fill out our fast, easy and 100% secure online application to get started today.