A cosigner can be very useful for first-time car buyers or borrowers with poor credit. However, if you have a lack of income, a cosigner isn't the answer you’re looking for. Here’s what cosigners do, and other solutions for borrowers struggling to meet the requirements for a car loan.
How Cosigners Help With Auto Loan Approval
Cosigners could help you get approved for an auto loan if your credit history is less than perfect, or if you’ve never taken on credit before. A cosigner gives a lender more security for the loan because they’re responsible for the loan balance if you become unable to pay. If your credit score is falling short of requirements, a cosigner could be the ticket to your next auto loan.
A cosigner is a person that lends you their good credit score to help you meet credit score requirements. They're also seen as a backup payer that steps up if you’re unable to make payments on the loan. Their income is not added to yours, so a cosigner doesn't help you meet the income requirements on a car loan.
You must meet the income requirements of an auto lender with your income, even if you have a cosigner. Cosigners also don’t help you make payments each month. A lender is likely to contact a cosigner if you miss a payment, though. For this reason, cosigners have their own income requirements they need to meet since they must prove they have enough income to repay the loan if you become unable to. However, a cosigner isn’t required to give you money each month for the car payments.
If it’s more income you need for your next auto loan, then a cosigner can’t help. Cosigners can’t add their income to yours to meet income requirements – this is where a co-borrower comes in handy.
Cosigner vs. Co-Borrower on Car Loans
The confusion of what a cosigner can do may come from the fact that the terms “cosigner” and “co-borrower” are often used interchangeably, but they mean very different things in the world of auto financing. A cosigner isn’t a co-borrower – but if you need more income for an auto loan application, then a co-borrower may be the way to go.
A co-borrower is a person, typically a spouse, that shares responsibility for the vehicle and its loan. You and the other borrower are called co-borrowers, and you're both equally responsible for making payments. Co-borrowers combine incomes and resources to meet the requirements of an auto lender.
Co-borrowers often go in together on car loans to increase the chances of getting approved for a larger loan balance. Spouses typically do this, since they can prove their incomes are combined and they have access to each other’s financial resources. Mortgages, credit cards, auto loans, personal loans are all common types of credit that spouses/life partners share because their incomes can usually be pooled together.
Income Requirements for Bad Credit Car Loans
If your credit score isn’t great, then you may need the assistance of a subprime lender for a car loan. These third-party lenders are signed up with special finance dealerships, and they often work within tough circumstances such as bankruptcy, no credit, and past vehicle repossession. While they may accept you despite a lower credit score, subprime lenders still carry income requirements that you must meet to qualify for auto financing.
Typically, subprime lenders require that you have a minimum monthly income of around $1,500 to $2,500, before taxes. Most subprime lenders require that this income requirement be met with one source of income, and proven with computer-generated check stubs.
If you have additional income sources, such as permanent disability or alimony, these could help you meet debt to income (DTI) requirements. Subprime lenders typically require that no more than 45% to 50% of your income isn’t going to be taken up by current expenses and the projected vehicle expenses.
If you can meet the requirements of a subprime lender, then you may not need a cosigner or co-borrower to qualify for a subprime car loan. However, if your credit score is really worse for wear, a cosigner could still boost your approval odds.
Get Connected to a Dealership With Our Help
Here at Auto Credit Express, we know that not every borrower has the ability to bring a cosigner along for the ride in the search for a new ride. Having a less-than-perfect credit score can make things even tougher in the pursuit of vehicle financing. That’s why we extend a helping hand to bad credit borrowers by connecting them to dealerships that are signed up with subprime lenders.
Get started by completing our free auto loan request form, and we’ll look for a special finance dealer in your local area with no obligation. We’ve been connecting borrowers for over two decades and our connections are coast to coast, so what are you waiting for?