Consumer Car Buying Advice Blog

While cosigning for a loan may help someone get a car, you need to be aware of what can happen if the borrower defaults.

When a cosigner is needed on a loan

Here at Auto Credit Express, we want you to know about the consequences of your financial decisions. In many loan situations, especially for first-time borrowers, a cosigner is the only way a bank will loan them money. What the bank does is look at the cosigner’s credit history and uses that history to satisfy the loan requirements when they make a borrowing decision. Since the borrower is also listed on the loan, the payment history will also be recorded on their credit report.

As a result, if the payment history is favorable, the borrower  now has a positive credit line. The cosigner, meanwhile, also has additional positive credit history. The key word here is “favorable”. If the borrower had any problems repaying the loan, then both the borrower and the cosigner will have problems.

What it means to cosign for a loan

When you cosign for a loan, you are jointly signing the loan as well as assuming the debt. You are also guaranteeing that the borrower won’t default on the payment. This is all well and good if the borrower makes all the payments on time, but if payments are late or missed, you are equally responsible for repayment and you could find yourself on the receiving end of everything from collection calls to garnishment.

Those whom the bank hath joined together…

Another aspect of cosigning is divorce. The lender will treat the loan as an instrument outside of the divorce decree. This means that if you and your significant other both sign for a loan and then get a divorce, the lender will hold you both responsible for a joint loan, even though the divorce decree assigns the debt to just one of you.

Think carefully before signing on the dotted line

Here at Auto Credit Express, we want your bad credit auto loan to help your credit. When you cosign for a loan, be aware of what you are doing and how it will affect your credit. Remember, we want you “on the road” to better credit!

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