When it comes to getting approved for an auto loan, the ideal situation for most borrowers is to go it alone. However, lenders sometimes require borrowers with bad credit to have a cosigner or a co-borrower. They may sound similar, but each one plays a different role. Read on to learn the similarities and differences between cosigners and co-borrowers.
How Cosigners and Co-Borrowers Are Similar
When it comes to getting a loan with another person listed on the loan documents, either a cosigner or a co-borrower can help you get the car loan you need. The role has many similarities in both cases, but also some key differences.
Let's first look at what they have in common:
- Application boost – If you're struggling with bad credit, the good credit of either a cosigner or a co-borrower can be used to boost a lender’s confidence in approving you for a loan. This is because both cosigners and co-borrowers agree to make the payments if you can't.
- Their credit is tied to yours – Because they're signing the loan contract with you, this means that their credit is affected by whatever happens with the loan, for better or for worse. If your credit score is improving due to on-time monthly payments, so is theirs; if it's dropping from constant late or incomplete payments, their credit score drops, as well.
- Possibility for better loan terms – Using either a cosigner or a co-borrower may help your loan in more ways than one. Not only can having one help you get approved, but you may qualify for a better interest rate based on your cosigner or co-borrower's credit, which saves you money over the loan term.
- Can't easily remove them from the loan – Another similarity shared by both cosigners and co-borrowers is that once they're on your loan contract, the only way to remove them is to refinance your auto loan. This isn't always easy because your credit must have improved enough (since taking out the loan) for you to qualify for it alone. You typically have to wait a year or two before this can happen.
Even with all of these similarities, there are some distinct differences between cosigners and co-borrowers. There are not as many differences as similarities, but they're important.
How Co-Borrowers and Cosigners Differ
The main difference between a cosigner and a co-borrower is that a co-borrower shares ownership or the vehicle you're financing. For this reason, co-borrowers are often referred to as co-buyers. Because of the shared ownership, co-borrowers are often spouses. On the other hand, cosigners can be anyone with good credit, but people usually ask close friends or family members.
The other reason a co-borrower is often a spouse is because a lender can combine your income and your co-buyer's. This can help you meet an income requirement you might otherwise not be able to reach.
The only way a cosigner can help you meet the income requirement is if your income, even if it's sufficient, isn’t garnishable and enough of their's is. Not all lenders allow this, and you can’t combine incomes like you would with a co-borrower.
The Bottom Line
If you're on the verge of meeting a lender’s requirements, but can't quite make it on your own, a cosigner or a co-borrower may be able to help you. If you're struggling with bad credit, and having trouble finding a lender to approve you – co-applicant or not – you may be looking at the wrong type of lender.
With bad credit, you typically need to go through a special finance dealer that has the subprime lenders available to help people who struggle with credit issues. These lenders have the ability to look beyond your credit score and approve you based on factors such as income, residence stability, and employment.
Let us help you find one of the dealerships in your area without all of the hassle of driving from dealer to dealer searching for the right lender. At Auto Credit Express, we've been helping bad credit car buyers get connected to local dealerships for over 20 years now, and we want to help you, too. Just fill out our no-obligation, fast, and free auto loan request form to get started today!