If you have no credit history and need to buy a car, it might occur to you to get a cosigner for your auto loan. If a family member or close friend with good or excellent credit agrees to cosign on your loan, you will have a better chance of being approved. This can be a good option, but if you need to build your credit, there may be another option to getting a cosigner – that option is being a cosigner.
When a Buyer with No Credit History Can Cosign a Loan
Being a cosigner might be a better option to consider than getting a cosign and being the primary borrower on the car loan. In some cases, it is possible for the car buyer to act as the cosigner on the auto loan if they have a very thin credit file. In this situation, the person with good credit would become the primary borrower. Why would this be a better arrangement?
Someone with excellent credit should have no problem financing a vehicle at a very low interest rate. That is why it would be best to assign this person the role of primary borrower. Of course, taking out a car loan and allowing a person with no credit history to cosign is an enormous favor. So, this kind of arrangement should only exist between two people who have a very close relationship.
Here's an example of a beneficial arrangement between a cosigner with no credit and one with good credit:
Reese is eighteen and about to start college. She needs a car before she goes away to school. As a young person who is just starting out, she has no credit history. But, luckily her mother, Susan has an 800 credit score. Susan knows that her daughter is very responsible, so she agrees to help her buy a car.
Reese and Susan visit the local Kia dealership, and Reese picks out a brand-new Kia Soul. Because of her excellent credit, Susan is able to get financed at a lower interest rate than Reese would be offered. So, she takes out the loan on the Soul in her name and allows Reese to cosign. It is understood that Reese will take ownership of the car and make all of the payments.
Reese does very well with making all of her car payments on time. Because of this, she starts to build a solid credit history. By the time the Soul is paid off, in fact, Reese has a high enough credit score to finance the next car that she buys on her own.
This is a best-case scenario that shows how someone with no credit history can be a cosigner, a role that is usually reserved for those with good credit.
Why is being a cosigner beneficial?
Being a cosigner can be beneficial to a person with a thin credit file since all the timely payments on the loan will help the cosigner build credit right along with the primary borrower since the loan is listed on both your credit reports.
Additionally, when the loan is taken out by someone with a higher credit score, there is a possibility of qualifying for a lower interest rate. The clear advantage here would be the possibility of getting a much better interest rate and building a good credit history.
Helps Build Credit
It’s common for young college students to have no credit. Credit is king in the United States, and being a cosigner on an auto loan will help you establish your own credit over time. Just like signing for your own loan, keeping up good credit habits with a cosigned loan will build your credit history and raise your credit score. This is a great way to learn how credit works – along with the responsibility of making on-time payments. Eventually, you'll no longer need a cosigner for a car loan.
It’s important to note that the primary borrower will have to have good credit. They’re ultimately putting their credit score on the line for you so you can establish credit.
Interest Rates
There's another advantage to being a cosigner on an auto loan. That's because the primary borrower will typically have a very good credit score due to their previous auto credit and longer credit history. Because auto loan interest rates are based on both these factors, as a cosigner this means you'll have a better interest rate. Going solo on a car loan without any previous auto credit puts you at a disadvantage, and could cost you a lot more in interest charges over the loan term.
The Difference between No Credit and Bad Credit
If instead of having no credit history, you have bad credit, it is highly unlikely that you will be permitted to cosign for someone with good credit. In this case, you would need someone to cosign your auto loan.
If someone has bad credit, it usually means that they've had a history of credit mismanagement. They may have missed a lot of payments, had accounts go to collections, or even filed for bankruptcy. When it comes to loaning money to a buyer with bad credit, there is a lot of risk for the lender. This is why so many consumers with credit issues are denied financing.
However, there are special finance lenders out there that are willing to work with bad credit car buyers. These lenders are able to look at factors other than credit in order to approve applicants with lower credit scores. Sometimes these buyers need cosigners in order to be approved, and sometimes they can be financed on their own. It really depends on the situation.
Just remember that if you have bad credit and are using a cosigner to get approved for an auto loan, your cosigner's good credit won't affect your interest rate. Because there will be risk involved for the lender, you will still have a higher-than-average interest rate on your loan. But if you make all of your payments on time, your credit should improve by the time the car is paid off.
So, hopefully, the next time you need to finance a vehicle, you won't have to use a cosigner and you'll get a better interest rate.
Auto Loan Help for No Credit and Bad Credit Buyers
If you have no credit or bad credit, Auto Credit Express can help you get approved for a car loan. We can match you with a dealership in your area that is connected to the right kinds of lenders. You'll get a better chance at financing success, and we'll work quickly to get you back on the road fast.
Our service is free and comes with no obligations, so you have nothing to lose. See how easy car buying can be when you have experts with nearly 20 years of experience on your side.
Just fill out our simple and secure online auto loan request form to get started today.
