Cosigning an auto loan carries with it responsibilities and hazards especially if the borrower has problem credit
What we know
Before agreeing to become a cosigner on any loan, but especially an auto loan for someone with bad credit, potential co-borrowers need to be aware of the risks involved as well as what their responsibilities might be.
Here at Auto Credit Express we’re familiar with what this entails because for more than two decades we’ve been helping car buyers with poor credit looking for online auto loans find those dealers that can give them their best opportunities for auto loan approvals.
But in some instances these buyers may not qualify on their own in which case someone with established good credit might need to be added to the loan.
People can typically qualify and be added to a finance contract in one of two ways: either as a co-signer, or a co-buyer.
Co-signers and co-buyers are similar because:
1. Both are considered co-borrowers and equally responsible, along with the primary borrower, for the loan. If the primary borrower is unable to meet the loan obligations (that is, making timely monthly payments), then it falls on both co-signers and co-buyers to make the loan payments.
2. Both types of co-borrowers are signatories on the loan. So in addition to the primary borrower, their names will appear on the loan contract. This also means that they are required to sign the loan documents.
3. In addition to the primary borrower, both types of co-borrowers can be subject to collection action if the loan goes into default – up to and including wage garnishment.
4. During the credit review process, lenders will review the credit files of both co-signers and co-buyers.
Co-signers and co-buyers are different because:
1. Lenders classify a co-borrower as either a co-signer or a co-buyer depending upon how that person’s income relates to that of the primary borrower.
2. Co-buyer income can be added to (co-mingled with) an applicant’s income in order to meet the lender’s income requirements. This combined income can then used to qualify the primary borrower for a loan. This means that a co-buyer is typically either the husband or wife of the primary borrower.
3. Co-signer income, on the other hand, cannot be added to the primary borrower’s income. In this case, the income of the primary borrower as well as that of the co-signer must qualify, individually, for the lender’s income requirements.
Additional co-borrower information
It’s easier to qualify as a co-borrower if the individual is related to the primary borrower. Typically, wives and husbands are treated as co-buyers.
Fathers, mothers, sisters, brothers, grandmothers and grandfathers as well as sons and daughters are, in most cases, treated as co-signers since their incomes usually cannot be co-mingled with that of the primary borrower.
The responsibilities of co-borrowers
Consumers who are contemplating becoming a co-borrower should think long and hard before coming to a decision and signing on the dotted line.
Co-borrowers are just as responsible as the primary borrower for making payments on time and paying off the loan. This becomes even more of an issue if the primary borrower has credit problems, since these types of auto loans carry with them a higher risk of delinquency, default and repossession.
As we see it
If you are considering becoming a co-borrower for any type of auto loan, be sure you know exactly what you’re agreeing to – including the very real possibility of making the loan payments if the primary borrower fails to do so.
One more tip: Auto Credit Express matches people with car credit difficulties to those new car dealers that can offer them their best chances for approved auto loans.
So if you’re ready to reestablish your auto credit, you can begin now by filling out our online auto loan application.
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