Bad credit auto loans are designed to help those struggling with credit. If you don't meet the requirements set by the lender, a cosigner can help you get approved by attaching themselves to the loan.

3 Benefits to Having a Cosigner

How Can a Cosigner Help on a Bad Credit Auto Loan?A cosigner is someone who signs the loan with you. They usually need to have good credit if you, the primary borrower, have bad credit. By attaching themselves to the loan, their good credit can give your application the boost it needs in order for you to get approved.

Here are three benefits that come with having a cosigner on a loan:

  1. Increased approval odds – When you add someone who has good credit to a bad credit car loan application, your approval odds usually go up.
  2. Helps you build credit – Adding a cosigned auto loan to your credit mix is a great way to build credit. Each monthly payment that you make on time can improve your credit score.
  3. May help you save money – Although not as common, it’s possible that you could save on your car loan if having a cosigner helps you qualify for a lower interest rate.

Keep in mind that your actions on the auto loan also affect your cosigner. If you miss a payment, your cosigner’s credit score also drops along with yours. It’s important to keep your cosigner in the loop with what’s going on for this reason.

Requirements Your Cosigner Must Meet

You’ve read about the benefits of having a cosigner, but what does it take for someone to be a cosigner? A cosigner can be anyone, from a close friend to a family member, but they need to qualify for the car loan on their own.

This means two things: your potential cosigner must have good credit, and they must have enough income. Most lenders look at both you and your cosigner’s FICO credit scores to determine if you qualify. A good FICO score is anywhere from 670 and higher, according to Experian.

For the income requirement, subprime lenders generally require a minimum monthly income of around $1,500 to $2,000 before taxes. They also have to have a qualifying debt to income (DTI) ratio, which determines if their monthly budget has room for an auto loan.

To calculate your DTI ratio, add up your monthly bills, including the estimated car and insurance payment, and divide the total by your pre-tax monthly income. Subprime lenders typically won't accept a DTI ratio that's higher than 45% to 50%.

The Bottom Line

Having a cosigner on a bad credit auto loan can help you get approved, and one may even be required in some situations. Make sure you discuss the role your potential cosigner is going to play, and make sure they’re OK with putting their credit on the line for you.

If you're ready to find financing, Auto Credit Express is here to help. We match people to local special finance car dealerships when they're dealing with less than perfect credit.

All you need to do is fill out our free auto loan request form, and we’ll work to get you connected to a dealer near you.