If you have bad credit, a lender may require you to have a cosigner in order to approve you for auto financing. Cosigner qualifications and rights don’t change by state, but in Texas, additional laws can limit the amount of interest charged to cosigners and co-borrowers.
Texas Law on a Cosigner
According to the Texas Administrative Code and Finance Code, lenders aren’t allowed to charge the primary borrower or their cosigner interest that exceeds Texas’ usury limit. In addition, lenders must disclose late fees in writing before they can charge the customer. If they break either one of these laws, it’s an illegal practice.
Another rule that protects primary borrowers and cosigners in regard to late fees is The Credit Practices Rule. This states that lenders aren’t allowed to charge an additional late fee – in addition to the original late fee – for being extra late. This is called “pyramiding late fees” and is illegal under federal law.
Cosigner and Primary Borrower Car Loan Rights
The primary borrower and the cosigner have similar rights – except when it comes to vehicle ownership. Cosigners have no legal rights to the car, but are still responsible for making payments in the event the primary borrower can’t. Co-borrowers, on the other hand, do have ownership rights to the vehicle.
In the event the primary borrower misses a payment, the lender can start collection proceedings against the cosigner. If they don’t make these payments, the late payments affect their credit score. If the car gets repossessed, the repossession gets listed on their credit reports, and they're responsible for paying any balance due and fees, too.
On the flip side, if the primary borrower makes regular monthly payments, being a cosigner can increase your credit score along with the primary borrower. As a cosigner, the auto loan is also listed on your credit reports as an installment loan. Your credit mix increases because you added a new line of credit, and your payment history is positively affected because each monthly payment is being made on time. At the same time, the loan is also added to your overall debt, which could also negatively affect your ability to qualify for new lines of credit.
Looking for Auto Financing in Texas?
If you can’t get approved for financing on your own, having a qualified cosigner can give you the boost you need. Make sure you sit down with your potential cosigner ahead of time and go over what it means to cosign a car loan.
Once you have your cosigner ready, you can start searching for a dealership with Auto Credit Express, where we work with dealers all across Texas – from El Paso to Houston to Dallas and everywhere in between. We want to help connect you to a local dealership that has the lending resources to get you the financing you need. Get started today by filling out simple and free car loan request form, and we’ll get right to work finding a dealer for you!