There are a few situations where you may be asked to provide a cosigner for your auto loan. In these three instances, you will likely be unable to get approved without one.
Scenario 1: When Your Credit Needs A Boost
If you are dealing with less than perfect credit, it is more challenging to get approved. This is because many lenders are not comfortable working with applicants with poor credit. This is also true for consumers with no credit history at all.
In this case, you need a cosigner with good credit to give your application a boost. A cosigner signs the loan alongside of you, making them just as responsible for the loan. This allows you to essentially "share" their good credit and apply it toward your application.
If you need a cosigner to qualify, you will still need to meet the rest of the lender's requirements on your own in order to get approved. In addition, the cosigner will need to individually meet the lender's income requirements, including debt to income (DTI) and payment to income (PTI) standards. And although you will have to, the cosigner will not need to provide supporting documentation because they have good credit.
Scenario 2: To Increase Your Income
Regardless of your credit, you will not be able to get approved without meeting the lender's income requirements. For starters, this means meeting their minimum monthly income amount. It also means being able to "debt out." That term refers to meeting the lender's DTI and PTI ratio standards. Check here for an in-depth look at those two ratios.
So, if you don’t meet each one of these requirements, you will not qualify. But you may be able to if you have a particular person as your cosigner: your spouse.
If you need a cosigner to increase your income, it has to be your spouse. This is because the incomes of two married people can be combined, or co-mingled. This can make it easier to meet the lender's standards because the combined amounts of your two incomes can be used to meet the income requirements.
Scenario 3: To Add a Source of Income That Can Be Garnished
If you have less than perfect credit, a lender will need you to verify additional information about your income. They will also need at least a portion of your income to be garnishable.
This can complicate things for borrowers with certain sources of fixed income, such as social security or disability. These income sources, while they can be counted toward your total income for a car loan, cannot be garnished. Therefore, you typically won't get approved unless you have an additional source of income that can be. That is, unless you can provide a cosigner.
If you have bad credit and no garnishable income, a cosigner can help you get approved. However, be aware that the cosigner in this case would have to:
- Have a form of income that can be garnished.
- Meet the income requirements individually.
- Meet the DTI and PTI standards.
The Bottom Line
In these scenarios, a cosigner can be the difference between approval and denial. But make sure that both you and the cosigner understand all of the consequences.
If you are having trouble getting approved for a car loan, it might be that you just aren't working with the right dealership. At Auto Credit Express, we connect people dealing with imperfect credit to a local dealership that specializes in helping people in all types of credit situations.
Our service is free, fast and puts you under no obligation. Plus, we work fast, so the sooner you get started, the sooner you could be driving off in your new car. Begin right now by filling out our free and secure auto loan request.