If you have no credit history and need to buy a car, it might occur to you to get a cosigner for your auto loan. If a family member or close friend with good or excellent credit agrees to cosign on your loan, you will have a better chance at being approved.
However, there might be a better option to consider. In some cases, it is possible for the car buyer to act as the cosigner on the auto loan. In this situation, the person with good credit would become the primary borrower. Why would this be a better arrangement? The clear advantage here would be the possibility of getting a much better interest rate.
When a Buyer with No Credit History Can Cosign a Loan
Someone with excellent credit should have no problem financing a vehicle at a very low interest rate. That is why it would be best to assign this person the role of primary borrower. Of course, taking out a car loan and allowing a person with no credit history to cosign is an enormous favor. So, this kind of arrangement should only exist between two people who have a very close relationship.
Susan is eighteen and about to start college. She needs a car before she goes away to school. As a young person who is just starting out, she has no credit history. But, luckily her mother, Estelle has an 800 credit score. Estelle knows that her daughter is very responsible, so she agrees to help her buy a car.
Susan and Estelle visit the local Kia dealership, and Susan picks out a brand new Kia Soul in lime green. Because of her excellent credit, Estelle is able to get financed at a 1% interest rate. So, she takes out the loan on the Soul in her name and allows Susan to cosign. It is understood that Susan will take ownership of the car and make all of the payments.
Susan does very well with making all of her car payments on time. Because of this, she starts to build a solid credit history. By the time the Soul is paid off, in fact, Susan has a high enough credit score to finance the next car that she buys on her own.
This is a best case scenario that shows how someone with no credit history can be a cosigner, a role that is usually reserved for those with good credit.
The Difference between No Credit and Bad Credit
On the other hand, if you have bad credit, it is highly unlikely that you will be permitted to cosign for someone with good credit. In this case, you would need someone to cosign your auto loan.
If someone has bad credit, it usually means that they've had a history of credit mismanagement. They may have missed a lot of payments, had accounts go to collections or even filed for bankruptcy. When it comes to loaning money to a buyer with bad credit, there is a lot of risk for the lender. This is why so many consumers with credit issues are denied financing.
However, there are special finance lenders out there that are willing to work with bad credit car buyers. These lenders are able to look at factors other than credit in order to approve applicants with lower credit scores. Sometimes these buyers need cosigners in order to be approved, and sometimes they can be financed on their own. It really depends on the situation.
Just remember that if you have bad credit and are using a cosigner to get approved for an auto loan, your cosigner's good credit won't affect your interest rate. Because there will be risk involved for the lender, you will still have a higher-than-average interest rate on your loan. But if you make all of your payments on time, your credit should improve by the time the car is paid off.
So, hopefully, the next time you need to finance a vehicle, you won't have to use a cosigner and you'll get a better interest rate.
Auto Loan Help for No Credit and Bad Credit Buyers
If you have no credit or bad credit, Auto Credit Express can help you get approved for a car loan. We can match you with a dealership in your area that is connected to the right kinds of lenders. You'll get a better chance at financing success, and we'll work quickly to get you back on the road fast.
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