Agreeing to be a cosigner for an auto loan carries with it responsibilities and pitfalls especially if the borrower has damaged credit
What you should consider
Before agreeing to become a cosigner on any loan, but especially something like a poor credit auto loan, consumers need to be aware of the risks involved as well as what they will be responsible for.
At Auto Credit Express we’re familiar with this situation because for the past twenty years we’ve been helping car buyers with credit issues find dealers that can arrange for approved auto loans.
But in some instances these applicants are unable to qualify for high risk car loans on their own. In these cases, someone with established good credit needs to be added to the loan.
These individuals can typically qualify and be added to the finance contract in one of two ways: either as a co-signer, or a co-buyer.
Co-signers and co-buyers are similar because:
1. Both types are considered co-borrowers and are equally responsible, along with the primary borrower, for a loan. If the primary borrower is unable to meet the loan obligations (that is, making timely monthly payments on the loan), co-signers and co-buyers are required to make the loan
2. Both types of co-borrowers are signatories on the loan. This means that, in addition to the primary borrower, their names will appear on the
loan contract. It also means that they will be 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.
Co-signers and co-buyers are different because:
1. Lenders 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.
2. Co-buyer income can be added to (co-mingled with) an applicant’s income in order to meet the lender’s income requirements. As such, the combined income is then used to qualify the primary borrower for a loan. This means that a co-buyer is typically either the husband or wife of the primary borrower.
3. Co-signer income, on the other hand, cannot be added to the primary borrower’s income. In this case, both the income of the primary borrower as well as that of the co-signer must qualify, individually, for the lender’s income requirements.
Additional co-borrower information
It’s easier to qualify as a co-borrower if that person is related to the primary borrower. Typically, wives and husbands are treated as co-buyers. Fathers, mothers, sisters, brothers, grandmothers and grandfathers as well as sons and daughters are, in most cases, treated as co-signers since their incomes usually cannot be co-mingled with that of the primary borrower.
The responsibilities of co-borrowers
For individuals thinking of becoming a co-borrower, it’s time to slow down and take a deep breath. Here’s why:
Co-borrowers are just as responsible as the primary borrower for making payments on time and paying off the loan. This becomes even more of an issue if the primary borrower has credit problems, since auto loans for people with poor credit scores have a higher risk of delinquency, default and repossession.
This being the case, consumers who are contemplating this step should think long and hard before signing on the dotted line.
The Bottom Line
If you or someone you know is considering becoming a co-borrower for any type of auto loan, be sure you and they know exactly what you’re agreeing to – which includes the very real possibility of making the loan payments if the primary borrower fails to do so.
Finally, there is just one more thing: if you or someone you know has been turned down for a conventional auto loan, we want you to know that Auto Credit Express matches consumers with poor credit with those car dealers that can give them their best opportunities for auto loan approvals.
So when you’re ready to reestablish your car credit, you can begin the process by filling out our online car loans application.
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