If you’re thinking about trading in or selling your car, but you enlisted the help of a cosigner, you may be wondering how that works. Let’s clear things up with cosigners and how they operate when it comes to auto loans.
Cosigners and Trading In a Vehicle
When you ask someone to cosign on an auto loan with you, it’s usually because your credit isn’t in the best shape, or you may be a new borrower. Cosigners are common for first-time car buyers or those who simply have a lower credit score. Many borrowers intend to improve their credit score with the help of the cosigned auto loan, so they can get into one by themselves in the future.
If your credit score has improved since the start of your car loan and you’re ready to upgrade alone, you can trade-in or sell the vehicle without the cosigner being present for the title signing. A cosigner doesn’t get any rights to the car that they cosigned for, and their name isn’t listed on the title.
To trade-in or sell a vehicle, you, the primary borrower, must be present at a sale and sign the title. A cosigner may have obligations to the loan on the car, but they don’t have any ownership rights, which means they have no say in whether or not you keep, trade-in, or sell the vehicle.
However, there is one hang-up. Cosigners can be on the hook for the balance if you don't pay off your auto loan right away. Selling your car without getting enough cash to cover your remaining loan balance immediately is risky, and could lead to defaulting on the loan and ruining both of your credit scores. If you’re considering selling a vehicle and you owe more on it than it’s worth (called having negative equity), talk to your cosigner about your plans first.
If you have equity, and you’re simply ready to get into another car, it’s probably more polite to tell the cosigner that you’re selling the vehicle. Remember that their credit was on the line when they agreed to sign the loan, and it’s nicer of you to let them know the status of the auto loan and the car.
If you're trading in the car, your equity situation also plays a role.
If you have equity, the dealership pays you the difference between what your vehicle is worth and what you owe on the old loan, paying off the old lender in the process. This means your cosigner would be all set.
If you're trying to trade in with negative equity, you either have to pay the difference between what you owe and what the car is worth or roll the negative equity in your new loan. Either way, the old loan is taken care of so the cosigner is off the hook.
Additionally, if your credit score hasn’t improved much or you simply need another vehicle, your current cosigner may be able to help you get into another auto loan. If you need them to cosign again, consider bringing them along for the trade-in or sale of your current car to move the process along.
How Cosigners Help You Get Approved
Many lenders can be hesitant to approve a borrower with less than perfect credit. Where a cosigner helps is lending you their good credit score and agreeing to pay for the vehicle if you can’t, which can allow you to get approved. However, if you default on the auto loan and don’t pay for it, both you and the cosigner are on the hook for the remaining loan balance.
Essentially, the cosigner acts as a backup payer. Often, it’s a big risk for a cosigner to help someone get approved for a car loan. A cosigner must have a good credit score, and if you start to miss payments, those get reflected on your credit reports as well as theirs. When someone sticks out their neck and cosigns an auto loan with you, their good credit score is on the line!
It can be difficult for a bad credit borrower to find a cosigner that can cosign a loan for them. It’s not a luxury that everyone has. For those without cosigners, there are still bad credit vehicle financing options.
Bad Credit Car Loans
For borrowers with less than stellar credit, or those who don’t have the help of a cosigner, there are subprime car loans. Subprime lenders work through dealerships with special finance departments, and they know how to assist borrowers in difficult credit situations. These lending options aren’t available everywhere, since not all dealers are signed up with these bad credit lenders.
Despite the fact that not every dealership has bad credit lending resources, we want to match you to one in your area because we know where they are! To get started with us at Auto Credit Express, complete our auto loan request form. We’ll look for a dealer near you that’s signed up with subprime lenders, and there’s no cost and no obligation. Get started today!