Regardless of whether you need a cosigner for auto financing, having a car loan is a great way to improve your credit.
How Does a Cosigner Help?
When you require a cosigner, it means you couldn’t be approved for a loan based on your credit history. When a cosigner agrees to help, they’re making it possible for you to improve your credit because a healthy credit mix is one of the ways credit grows. Having a mix of both revolving credit (credit cards, lines of credit) and installment credit (auto loans, home loans) accounts for 15 percent of your credit score.
Having a cosigner can be helpful if you have poor credit, or haven’t used credit in the past. A lender will look at their credit as a guarantee that the loan will be repaid, while a cosigner agrees to make payments if the primary borrower can’t.
Who Can Be a Cosigner?
Anyone who qualifies can be your cosigner, but it isn’t something to be taken lightly. People typically ask either close friends or family members to be a cosigner because of the risks and requirements involved. Whoever you choose will have to qualify for the loan, just as you would. This means that besides having good credit, they must meet the lender’s income and debt to income requirements.
What are the Risks of Having a Cosigner?
The saying “with great power comes great responsibility” really applies to the borrower/cosigner relationship. A cosigner has the power to help you get a loan, but that means they’re responsible for paying for it in the event that you can’t – or don’t.
Because any activity on the loan – good or bad – will show up on both credit reports, what you do will directly affect your cosigner’s credit score. Your responsibility is to ensure you’re ready to take on the loan, and to make all payments on time. Doing so will build your credit, and help to ensure that your credit has improved enough for you to go it alone on your next loan.
If you find yourself unable to keep up with the responsibilities of your auto loan, don’t wait for the lender to knock on your cosigner’s door. At the first sign of a possible missed payment, contact your lender and see if they can help. This may help avoid potential consequences, like repossession, which can hurt both you and your cosigner.
How Do I Know if I Need a Cosigner?
Only a lender can require you to get a cosigner. The best way to increase your chances of getting the loan you need without a cosigner is to start at the right dealership – but not all dealers work with people who have poor credit.
Luckily, Auto Credit Express works with a nationwide network of special finance dealers that have the lending resources available to help many credit-challenged consumers. Let us help put you on the path toward auto financing with our no-obligation auto loan request form. It’s free and simple to get started, so take the first step today!