Congratulations, you have tied the knot and now your life has a real sense of togetherness. You proudly proclaim that things are "ours" instead of "mine" or "yours." As people dive into married life, they sometimes begin to merge all aspects of their single lives into one. Joint things may sound like a great idea, but if one or both partners have bad credit, this may not be the best course of action.
Though your credit will never co-mingle with your spouse's, there are ways in which having a partner with bad credit can negatively impact your family. For instance, it may be more difficult to qualify for things you want to take on together, such as joint credit cards, mortgages, or auto loans. In these cases, you may be looking at lower mortgage amounts and credit limits, or auto loans and credit cards that carry higher interest rates.
Especially when it comes to auto loans with your spouse, there are a few things to consider before you sign on the dotted line.
Should I Be a Co-buyer?
- As a co-buyer, both partners will assume payment responsibility and ownership rights to the vehicle. A lender will look at the credit reports of both parties, and, in this case, both spouses’ incomes will be added together to meet the requirements for a potential vehicle loan.
- A co-buyer is NOT a cosigner. A cosigner is either a family member, which isn't a spouse, or a close friend who agrees to assume the debt should the primary borrower default. In this case, an individual is putting their credit on the line but will not have ownership rights. This also means the cosigners' income will not be co-mingled with the primary borrower's.
Will This Have a Positive or Negative Impact on Our Credit?
Having a joint auto loan could have positive or negative impacts, so it is important to weigh all the options.
- When one partner has a higher credit rating, they can help to positively impact the credit of a lower scored spouse by taking out a joint auto loan. When all the payments are made on time for the term of the loan, ratings should improve. This boost will especially help to improve the credit for a spouse who was struggling with low scores on their own.
- A spouse with poor credit can have the opposite effect in a joint situation if they fall behind or default on the loan. These dings will show up on both credit reports and negatively impact both credit scores. In a co-buyer arrangement, it may become more difficult for either partner to qualify for individual credit in the future. This is because lenders will see the loan obligation on their credit reports and include it when calculating their debt to income (DTI) ratios.
Some Other Things to Consider
No one likes to consider an eventual messy end to the happiness you may feel during the newlywed stage. But thinking to the future, and all of its possible outcomes, is always a good tip.
- It is a very real fact that joint property can become a point of contention in the event of a divorce. When both partners have entered into a contract, such as a car loan, they will continue to be held accountable to the terms of that agreement. Even if a divorce decree states one party is no longer responsible for the loan, a lender will still hold both signers responsible. This also means any action, such as late payments or repossessions, will be reported on both parties' credit reports.
- Also consider that, even if things do not end poorly, it is very difficult to remove a co-buyer from a loan. The only way to do this is for the primary borrower to have the vehicle refinanced, without the co-borrower. This is only possible if their credit has improved enough so they now qualify for a loan on their own.
The Bottom Line
Whether you are the half of a partnership in need of a helping hand with your credit or the spouse lending the hand, always consider all your options before diving into joint financing ventures. Remember that the decisions you make in these situation will impact both of your credit scores, either for better or worse.
When you are considering the purchase of a vehicle with credit challenges, Auto Credit Express can help you begin the process. A subprime auto loan can be one of the best tools to rebuild a poor credit situation, whether going it alone or with a spouse.
Auto Credit Express helps consumers by connecting them to dealers who have experience working with customers who have bad credit. Let us help you take the first steps toward better credit today by filling out our auto loan request form.