When you're unable to take on a car loan by yourself, you can get a cosigner or a co-borrower, but you can't have both at once. Cosigners and co-borrowers have very different roles in your auto loan experience. But, how do you know which one you need?
Different Roles for Cosigners, Co-Borrowers
The words may sound similar, but the way cosigners and co-borrowers help when you need a car loan differ quite a bit. One helps when credit is the issue, the other when it comes to income.
Cosigners can help you get an auto loan when your credit score is on that line between lender approval and hesitation. A cosigner can be anyone, but most borrowers typically ask a close friend or family member. A cosigner must have good credit, and they also have to qualify for the car loan just the same as you do. Cosigners don't own the vehicle, but they do agree to make payments if you fall behind, and their credit can take some serious damage alongside yours if you start to let payments slide.
Co-borrowers, on the other hand, can help you get approved for an auto loan if your income doesn't meet the lender's requirements. In order to give your income a boost, lenders combine your income amounts and consider them together. This means that the co-borrower on your loan can only be a spouse or life partner – you can't combine incomes with just anybody! It also means that a co-borrower owns the car, too.
Cosigners Need Good Credit
In a way, your cosigner should have an easier time getting approved for an auto loan than you. Having a person with a good credit score is essential to them being a cosigner, but because their credit is better than yours, it has further to fall if something happens to the loan.
Cosigners take on a big risk, and so you have to make sure they know what they're signing up for when they agree to help you out. Because they don't own the vehicle you're getting in any way, they have very little recourse if you stop paying your car loan.
Co-Borrowers Need Enough Income
Co-borrowers should have a good credit score, but their main role is to help you out financially, though they still have to have the credit to qualify for the loan. What lenders are looking for in a co-borrower is someone with an income, when combined with the primary borrower, that meets their minimum monthly income and debt to income ratio requirements.
A co-borrower is a good option if you have everything you need to take on a car loan, but your income comes from a combination of part-time jobs. Another example of a situation where a co-borrower comes in handy is when you're just shy of meeting a monthly income requirement.
Because the lender is looking at you both in an overall way, your co-borrower doesn't have to meet the additional lending requirements on their own – you've already got those covered!
Do You Need Someone Else on Your Car Loan?
If you're turned down for an auto loan due to credit or income, don't jump to the conclusion that you can't get a loan without help. It may just be that you've been searching for a loan through the wrong type of lender.
Not all lenders finance people in all credit situations. Typically, direct lenders like banks and credit unions reserve their loans for members with good credit. Captive lenders through specific automotive brands aren't always able to offer deals to everyone either.
However, there's a type of lender that knows you're more than a credit score – subprime lenders. These lenders use other factors in addition to your credit score to get you approved for a car loan.
Subprime lenders can work with people in a wide range of unique credit situations, but you can only find them through dealership special finance departments. Not all dealers have these, so it can sometimes be difficult to know where to turn. Fortunately, we can help.
Finding the Car Dealership You Need
Here at Auto Credit Express, we know how important the right auto loan can be. Whether with or without someone helping you along, a subprime lender is a good place to start when you need a car loan.
If you're looking for your next vehicle, start right here by filling out our simple auto loan request form. It's fast, free, and there's never any obligation. We can't wait to match you to a dealership that knows how to help!