If you recently applied for an auto loan and you were told you need a cosigner to qualify, here’s what you need to know.
Finding a Cosigner for a Car Loan
Really anyone can be your cosigner, but they have to meet some requirements. Many first-time borrowers ask one of their parents or a family member to help them get into a car loan. Those who’ve never taken on any credit often have no credit scores or lower credit scores, sometimes resulting in the need for a cosigner to qualify.
The only person that can’t cosign on your auto loan is your spouse, since they would become a co-borrower instead. Co-borrowers help you qualify for a car loan because your incomes are combined to meet the lender’s requirements.
A cosigner, on the other hand, helps you by lending you their good credit score.
The most important stipulation of a cosigner is that they have good credit. A cosigner with a credit score that’s low, or similar to yours, probably isn’t going to help you get approved for an auto loan.
Another very important requirement of a cosigner is that they must have enough available income to be able to cover your car loan payment in the event that you’re unable to. While a cosigner isn’t there to make the payments each month, or even help with other vehicle-related expenses, they’re your backup payer.
How Cosigned Auto Loans Work
A cosigner helps you get approved for an auto loan by lowering the risk of it falling into default because they’re legally obligated to pay for the vehicle if you can’t – but that doesn’t mean that they get rights to the vehicle. In fact, their name is never listed on the car's title. You’re the primary borrower, and only you have ownership rights.
Because the cosigner has accepted some responsibly for the loan, essentially vouching for you, both of your credit scores are on the line. Meaning, if you have late payments or start to miss payments altogether, both of your credit scores stand to take some damage.
However, if you handle the loan well and stay current on the payments each month, both of your credit scores can see a boost.
That’s Great, but I Can’t Get a Cosigner
Not everyone has the ability to get a cosigner for their first auto loan or when they have a lower credit score. Often, those with lower credit scores who apply for a traditional car loan are asked to have a cosigner because their credit score doesn’t meet the minimum requirements.
If you can’t get a cosigner and you’re struggling to qualify for a traditional auto loan, it may be time to look into subprime financing.
Subprime car loans are done through dealerships with special finance departments. These lenders specifically work with bad credit, bankruptcy, first-time buyers, and other unique credit situations. Subprime lenders look at more than just your credit score to determine your eligibility for auto financing.
They often look at your credit reports as a whole, your income and residency stability, your work history, and they require a down payment. These aspects create a better picture of you as a borrower to determine your ability, stability, and willingness to take on a car loan.
Finding a Dealer for Your Credit
Having a cosigner can be a great resource, and a way to get on the good side of the credit scoring spectrum. However, not everyone has that luxury, and it can be hard to find auto financing if your credit score is suffering. We want to help with that.
Here at Auto Credit Express, we’ve cultivated a nationwide network of dealerships for over 20 years. With this network, we match bad credit borrowers to local dealers with the resources to work with their credit scores. To get started, fill out our free car loan request form. We’ll start looking for a dealership in your area with the lending resources you need for your credit.