Cosigning Bad Credit Auto Loans

Becoming a cosigner for approved auto loans comes with responsibilities you need to be aware of before signing the loan contract

What you should know

Before you cosign for any loan, especially no credit auto loans, you should be aware of what you’re getting into.

We know because for nineteen years we’ve been involved in bad credit car sales here at Auto Credit Express.

We also get a lot of satisfaction in explaining why tote the note dealers won’t improve credit scores and we cover the problem credit auto loan process so applicants can avoid issues that often result in repossession.

A co-borrower

The reality is that not all applicants with bad credit are able to rebuild their auto credit on their own. In some cases an additional person is needed so they can qualify for a bad credit auto loan. There are two ways this is typically handled and you should know both.

An individual can be added to the finance contract of a problem credit auto loan as either a co-signer, or a co-buyer. Although the wording is different, there are similarities between the two:

1.    Both a co-signer and co-buyer are considered co-borrowers and are equally responsible for a loan. If the primary borrower is unable to meet the loan obligations, than both co-signers and co-buyers are required to make loan payments.

2.    Both types of co-borrowers are signatories on the loan. This means that in addition to the primary borrower, their names appear on the loan contract and both sign the loan documents.

3.    In addition to the primary borrower, both co-signers and co-buyers can be subject to collection action, including wage garnishment, if the loan goes into default.

4.    During the application process, the lender will review the credit reports of both types of co-applicants and take their credit information into consideration.

The difference

While the credit backgrounds of both types of co-applicants are considered, lenders view their incomes differently. In fact, the bank classifies someone as either a co-signer or a co-buyer depending upon how their incomes relate to that of the primary borrower.

Co-buyer – This person’s income can be added to (co-mingled with) an applicant’s income in order to meet the lender’s income requirements. The combined income of both is used to qualify for a loan. In most instances, this means that the co-buyer is either the husband or wife of an applicant.

Co-signer – While the credit background of this individual is considered in meeting the lender’s credit requirements, this person’s income will not be added to that of the borrower’s in order to meet the minimum income requirements. This means that the income of the primary borrower as well as that of the co-signer have to qualify, individually, for the lender’s income requirements.

Other qualifications

Typically, it’s easier for someone to qualify as either type of co-applicant if they are related to the primary borrower. In most cases, wives and husbands are usually recognized and treated by lenders as co-buyers on a loan. Fathers, mothers, sisters, brothers, grandmothers, grandfathers as well as sons and daughters who are co-applicants are usually considered to be co-signers, since their incomes usually cannot be co-mingled with that of the primary borrower.

The Bottom Line

Before co-signing for a bad credit auto loan you should be sure you know exactly what you’re agreeing to – which includes the potential of making loan payments if the primary borrower does not.

At Auto Credit Express we help people with bad credit find a dealer that can give them their best chance at approved auto loans.

This means if you’re serious about getting your car credit back on track, you can begin the process by filling out our online car loans bad credit application now.

Posted on September 11, 2011 by in Auto Loans, Bad Credit, Lender Companies
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