Although a cosigner is equally responsible for an auto loan they sign on, they never legally own the car. The only way a cosigner can gain ownership is if the loan is refinanced in their name and the title is transferred to them. Keep reading to find out more about the role of a cosigner on a bad credit auto loan.
Cosigner Rights and Responsibilities
What exactly does it entail to have a cosigner on a car loan? Well, in simple terms, a cosigner acts as a helper. They sign the loan documents and attach their good credit to the auto loan to help you get approved.
In some cases, cosigners can be used to help with income issues if you have enough income but it isn’t earned income. In this case, the lender may consider approving the loan based on the cosigner’s available income, but you can’t combine incomes to qualify for the loan.
Once the cosigner signs the loan documents, they technically don’t need to be involved, unless the primary borrower becomes unable to pay. At this point, the cosigner needs to step in and make sure the payments are made. The cosigner doesn’t have any legal rights to the vehicle, but they're still responsible for the loan.
Both the primary borrower and the cosigner’s credit are affected by the car loan, and this activity shows up on their credit reports. So, any positive or negative action taken by the primary borrower is going to directly affect the cosigner and both of their credit scores.
Also, keep in mind that cosigners don’t get the same bankruptcy protection as the primary borrower. The lender can still come after the cosigner to make payments on the loan if the primary borrower files for bankruptcy and the vehicle is included in it.
What Are Co-Borrowers?
You know what a cosigner is, but what’s a co-borrower? Don’t get these two confused – they’re not the same thing. Co-borrowers are equal owners of the car, and their names are on the title along with the primary borrower.
A co-borrower attaches themselves to a loan to help a primary borrower qualify. If your co-borrower is your spouse, you can combine incomes to possible qualify for better loan terms.
Just like a cosigner, both the primary borrower and the co-borrower’s credit scores are directly affected by the activity on the auto loan. However, what makes a co-borrower different – in addition to shared ownership – is the protection they get in the event of bankruptcy. If the primary borrower declares bankruptcy, the co-borrower gets equal protection during the filing process since they co-own the vehicle, and vice versa.
Removing a Cosigner or Co-Borrower
What if you don’t need or want the cosigner or co-borrower on the loan anymore? The only way you can remove them is by refinancing the loan. To qualify for refinancing, your credit score typically needs to have improved since you took out the car loan, and at least a year needs to have passed.
Removing a cosigner is simpler since they don’t own the vehicle. You just go through the refinancing process on your own, and don’t need to have the cosigner involved.
If you’re going to remove a co-borrower, however, you need to go through the refinancing process, and have both you and the co-borrower sign the title at your local DMV or Secretary of State office. This legally allows you to become the sole owner of the car, which means you can apply for a new title and registration without the co-borrower.
The Bottom Line
Cosigners don’t ever own the vehicle. Co-borrowers, on the other hand, share ownership rights with the primary borrower. Make sure you know the difference between the two, and pick someone who fits either the cosigner or co-borrower requirements.
If you’re considering bad credit auto financing, but don’t have a dealer to work with, we want to help. Auto Credit Express has been helping consumers find financing for over 20 years by connecting them to local dealerships that know how to handle bad credit. To get started, fill out our car loan request form.