Getting a car loan in Seattle can be tough when you have bad credit. All hope isn't lost though. There are a few ways you can help yourself get approved for the auto loan you need – and one of them is a cosigner.
How a Cosigner Helps You Get a Car Loan
A cosigner is a person, typically a close friend or family member with good credit, who allows a primary borrower to "borrow" their credit in order to get them approved for a car loan. Cosigners aren't required when you have good credit, but when you have bad credit, a lender may require you to have one for extra loan security.
Lenders determine if you're going to be responsible with a loan based on how you've handled credit in the past. When you have poor credit, or no credit history, it can be difficult for a lender to feel confident approving you for a loan. This is where a cosigner comes in. Having a cosigner with good credit helps to ensure successful loan completion.
Risks Involved in Cosigning an Auto Loan
By signing your loan, a cosigner is promising that the contract is going to be paid on time – they're agreeing to be equally responsible for the loan payments. Even though a cosigner takes on this responsibility, they don't own your vehicle.
Keep in mind, however, that because they're on the loan, their credit is affected by what happens to it. So, if you fall behind or miss a payment(s), it causes both you and your cosigner's credit scores to drop.
A cosigner is essentially gifting you an auto loan when they let you use their solid credit to stand on. In the world of car buying, sometimes cosigners are necessary, but, let's face it, people don't like to be cosigners. It impacts their credit, and could drop their credit score or stop them from getting a loan in the future if you screw up on this loan.
It could also cost them a lot of money if you can't pay and they have to in order to avoid a lower credit score or repossession on their credit reports. This is why it's important to choose your cosigner carefully.
Being a cosigner means agreeing to make payments if you can't, so good credit isn't enough. Cosigners also need to qualify for the loan themselves. No matter how much you think you're going to be responsible, and that this cosigner business is just a formality, the future is uncertain. Lenders view a cosigner just like they would a borrower, in some respects.
Let's look at what's typically required of a cosigner in the Seattle area:
- Good credit – A FICO credit score of around 660 or above is typically considered good, but a lender may ask that a cosigner meets a higher credit score requirement.
- Qualifying income – Just like you (the primary borrower), your cosigner has to at least $1,500 to $2,000 a month before taxes. Unlike you, however, lenders are less concerned with the source of a cosigner's income, so they may not be asked to provide proof of income.
- Acceptable debt to income (DTI) ratio – Just like they did for you, a lender is going to "debt out" your cosigner. This lets the lender know that they have enough available income to handle the loan. The debt to income ratio compares a person's bills to their income. As long as your cosigner's DTI isn't above 45 or 50 percent (including your estimated auto loan payment), they should be acceptable to your lender.
Finding a Dealership in Seattle
Before you sit down at your local Starbucks with your favorite aunt to ask if she can cosign a car loan for you, you need to make sure you're working with the right kind of lender for your credit situation. Working with a subprime lender in Seattle might mean you can qualify for lending without putting someone else’s credit on the line.
These lenders are uniquely qualified to work with bad credit borrowers in the Emerald City, and across the nation, but they only work through special finance dealerships.
Here at Auto Credit Express, we know where to go to find the dealer you need. Save yourself the drive up and down Airport Way looking for the right dealership, and fill out our hassle-free, no-obligation auto loan request form instead. We'll get to work matching you with a local Seattle dealer after you do.