Being a Co-Borrower vs. a Co-Signer on a Car Loan

When it comes to car loans, the terms “co-signer” and “co-borrower” come up frequently. And while these terms may seem similar, there are significant differences between the two roles. For example, if you have bad credit or no credit, having a co-signer can help you get approved for an auto loan.

On the other hand, when income is the primary concern, taking on a co-borrower might be an option. A co-borrower (or co-applicant) also has ownership rights when it comes to the vehicle being purchased. So, typically, only individuals who are married to each other will enter into a co-borrowing arrangement.

The Role of the Co-Signer in an Auto Loan

co-borrower vs. co-signer on a car loan

When someone co-signs an auto loan, they might be thought of as a “silent partner.” The buyer basically “borrows” their good credit score in order to get approved for financing. Also, in some cases, a co-signer may be used if an applicant with bad credit doesn’t have garnishable income. In this type of situation, a co-signer’s income is verified, but no funds are mingled.

After an individual co-signs a loan, they’re not expected to be actively involved with repayment unless something goes wrong. If the primary borrower defaults on the loan, the co-signer is responsible for making payments. Also, the co-signer’s credit score will be negatively affected if the borrower misses a due date or stops paying altogether.

However, a co-signer has no ownership rights when it comes to the car. This means that if they are forced to take over payments, they do not get to take and use the vehicle in question.

The Role of the Co-Borrower in an Auto Loan

If a co-borrower is involved in an auto loan, it is likely that one of two things is going on. It may be the case that a primary borrower lacks the qualifying income that they need for approval. Or, frequently, a married couple wants to take out a loan that is too large for either of them to qualify for on their own.

Co-borrowers are permitted to co-mingle funds, and both of their names will appear on the title to the vehicle. They are equally responsible for making payments on the car, and both buyers will have ownership rights when it comes to the vehicle. This means that if the couple splits, it should be determined (in court) who will get to keep the car.

If one co-borrower declares bankruptcy, where the car is concerned, the other one will receive equal protection during the filing process. However, the same is not true for co-signers. If a primary borrower surrenders a car with a co-signed loan in a bankruptcy, the co-signer may still owe money. This would be any debt that is not covered by the collateral (the current value of the car).

Sometimes You Just Need the Right Auto Loan Assistance

If you think that you’ll need a co-signer or co-borrower in order to qualify for an auto loan, you may be surprised. Often, bad credit buyers just need to get connected to the right resources in order to get the financing they need.

At Auto Credit Express, we’ve been helping car buyers with credit issues get auto loan approval for nearly two decades. We can do this by matching you with a dealership in your area that can work with your situation.

Our service is free and comes with no obligations, so you have nothing to lose. Go ahead and fill out our simple and secure online application to get started today.

Posted on January 8, 2017 by in Auto Loans
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