There's nothing specifically that says your spouse can't be your cosigner, but in most auto loan situations, lenders are more likely to recommend a joint auto loan between spouses. Though they sound very similar, a joint auto loan with a co-borrower and an auto loan with a cosigner is very different.
Auto Loans With Your Spouse
When you apply for a car loan with another person you first have to decide if you both plan on owning the vehicle. If you do, it's a joint auto loan, where your spouse is likely to become your co-borrower, not your cosigner.
Co-borrowers have equal rights to property they hold jointly, such as a house or a car. You're both responsible for making payments, both have your names listed on the car title, and both need to be present if you plan on selling the car.
In some cases, you may need the help of your spouse to get a vehicle; spouses often apply for loans together to get larger loan amounts and equal rights to the asset. And, in some states, even if you don't intend to make your property shared, the state sees any property purchased while you're married as community property – regardless of whose name is on the title.
When your spouse is only the backup payer and doesn't have their name on the car title, they're a cosigner. This doesn't typically happen since many lenders automatically view your income as one if you're applying with your spouse, which is why it's much more common to have your spouse as your co-borrower than your cosigner.
Differences Between Co-Borrowers and Cosigners
Co-borrowers can help when you have too little income, or provable income, to qualify for an auto loan. Cosigners, on the other hand, can help you out when your credit score is in a jam. Let's breakdown the differences:
Co-borrowers are also called joint borrowers or joint applicants, and their income is combined to meet or exceed the income requirements of an auto loan. Both co-borrowers names appear on the vehicle title, and both are fully responsible for the car and the loan. Both of your credit reports will show the loan, as well. More importantly, though, both of your incomes combined determine the amount of auto loan you qualify for.
For instance, if you make $2,740.02 per month before taxes, and your spouse earns $2,078.40, the lender uses $4,818.42 as the basis for your income. This means you may be able to finance more, and ultimately may qualify for a wider range of vehicles. However, you must both meet all the auto loan requirements individually. And, only the lowest credit score between you is typically used to determine things like which interest rate or loan term you qualify for.
Cosigners, on the other hand, don't help you out with income to qualify for the car loan – you have to do that on your own. Where they can give you a boost is in your credit score. Cosigners "lend" you their good credit score to help you meet the qualifications of auto lenders. In some cases, even if you meet the requirements, you may be able to use a cosigner with a better credit score to help you qualify for better rates or terms.
They also aren't responsible for making your payment until the time when you can't or don't make it. When this happens, your lender comes to your cosigner to collect what you owe. Additionally, the negative marks from the missed payments show up on both your credit reports.
Cosigner or Co-Borrower?
When you're shopping for an auto loan as a bad credit borrower, it can pay to have all the help you can get. But sometimes it can be tough to know whether you need a co-borrower or a cosigner. Here are three situations that may require someone else on your loan – but do you need a cosigner or a co-borrower?
- First-time car buyer – If you're new to the world of credit altogether as someone just starting out, or if you've simply never put a big-ticket item on credit, a cosigner is the go-to for a situation involving a poor credit score.
- On a tight budget – If you're struggling to make ends meet on your own, or if it takes all your combined resources to run your household, taking on an auto loan may seem like a big step. But if you need a car to carry your family around, opt to use your spouse (or life partner) as a co-borrower. This gives you both shared responsibility and allows you to look at a wider range of vehicles than you may qualify for on your own.
- Past repo on your credit – If you have a repossession on your credit reports, even if it's a year old, it can lower your credit score and color a lender's view of how you might be as a borrower. To increase your credit score and possibly qualify for better rates or terms, a cosigner may be the way to go. Cosigners give peace of mind to lenders since they act as a backup payer if you fall behind.
Ready to Roll on an Auto Loan?
Now that you know the role your spouse can play in your auto loan, it's time to find the right path forward with a dealer. If you're struggling to get a car loan on your own, adding your spouse as a joint applicant may help. And, if you're not sure where to start due to poor credit, we've got you covered at Auto Credit Express. Get connected to a local dealership that's signed up with the lenders you need by simply filling out our fast, free auto loan request form.