Cosigning Hazards of No Credit Auto Loansby Steve Cypher on Friday, July 27th, 2012
Prior to cosigning anything, especially a subprime auto loan, you should know the risks and what you are accountable for.
We’re familiar with all of this at Auto Credit Express because for the past two decades we’ve been helping car buyers with credit issues find dealers that can arrange financing.
But the fact is, not all applicants are able to qualify for approved auto loans on their own. This means that someone with established good credit must be found.
This person can typically qualify and be added to the finance contract in one of two ways: either as a co-signer, or a co-buyer.
The two are similar because:
1. Both co-signers and co-buyers are considered co-borrowers and equally responsible for a loan. If the primary borrower is unable to meet the loan obligations, than both types of co-borrowers are required to make the loan payments.
2. Both are signatories on the loan. That is, in addition to the primary borrower their names appear on the loan contract and both are required to sign the loan documents.
3. In addition to the primary borrower, both co-borrower types can be subject to collection action if the loan goes into default – up to and including wage garnishment.
4. During the credit review process, lenders will review the credit reports of both co-signers and co-buyers.
The two are different because:
Lenders will classify a co-borrower as either a co-signer or a co-buyer depending upon how that individual’s income relates to that of the primary borrower.
Co-buyer income can be added to (co-mingled with) an applicant’s income in order to meet the lender’s income requirements. The combined incomes of both are used to qualify for a loan. As such, a co-buyer is typically either the husband or wife of an applicant.
Co-signer income cannot be added to borrower income in order to meet a lender’s requirements. This means that both the incomes of the primary borrower as well as that of the co-signer must qualify, individually, for the lender’s income requirements.
Additional co-borrower qualifications
It’s easier to qualify as a co-borrower if that person is related to the primary borrower. In most cases, wives and husbands are treated as co-buyers.
Fathers, mothers, sisters, brothers, grandmothers and grandfathers as well as sons and daughters are typically recognized as co-signers, since their incomes usually cannot be co-mingled with that of the primary borrower.
Co-borrowers are just as responsible as the primary borrower for making payments on time and paying off the loan amount. This becomes even more of an issue if the primary borrower has credit issues, since car loans for people with credit problems carry a higher risk of delinquency, default and repossession.
As we see it
Before offering to become a co-borrower for any type of auto loan, be sure you know exactly what you’re agreeing to – which includes the possibility of making the loan payments yourself if the primary borrower fails to do so.
One more thing: if you or someone you know has been turned down for a conventional auto loan, here at Auto Credit Express we match applicants with poor auto credit to dealers that can offer them their best chance at approved auto loans.
So if you’re ready to reestablish your car credit, you can begin the process by filling out our online auto loans application.