When you have bad credit, you may find it difficult to get auto financing on your own. Besides the basic requirements subprime lenders ask for, some may require you to have a cosigner or co-borrower in order to approve you for a bad credit car loan.
Cosigner vs. Co-Borrower
First thing’s first, the terms cosigner and co-borrower aren’t interchangeable. Both can help you get approved for auto financing, but their roles are very different.
A cosigner is someone who lets you “borrow” their good credit in order to get you approved for financing. Cosigners don’t have any legal rights to the car, but are held accountable for the loan since they signed it with you. The auto loan is listed on their credit reports, and any negative or positive action is going to affect their credit score the same as the primary borrower. All in all, the cosigner's main role is to provide a credit boost and be willing and able to make the loan payments in the event the primary borrower can’t.
Meanwhile, a co-borrower is more involved in the car loan. Unlike a cosigner, they share equal rights to the vehicle and their name is on the vehicle's title. A co-borrower is typically a spouse because this arrangement allows the primary borrower and the co-borrower to combine incomes to qualify for the loan. You also may be able to get a better interest rate and lower monthly payment if their credit score is much higher than yours.
When it comes to bankruptcy, co-borrowers get equal protection during the filing process, but cosigners don’t. If the primary borrower gives up the car during a bankruptcy, the creditor can go after the cosigner for any money that’s owed.
Cosigner and Co-Borrower Requirements
In order for someone to be a cosigner or a co-borrower for a primary borrower with poor credit, they need to have good credit. If they don’t have this, you should consider finding someone else. While both require good credit, cosigners have less requirements than co-borrowers.
Cosigners with good credit don’t need to show proof of income, nor do they need to live in the same state as you. Co-borrowers, on the other hand, need to be a spouse or family member who's 18 years old or older. If they're a spouse, they also need to provide proof of income.
The Bottom Line
Make sure you sit down with your potential cosigner or co-borrower ahead of time. Discuss their role, and explain why you want them on the auto loan. Once you have that all figured out, you can begin searching for financing. If you need help getting started, we can point you in the right direction.
Auto Credit Express has been helping consumers get approved for car loans for 20 years. We do this by matching buyers with dealerships in their area that work with unique credit situations. Our service is free and comes with no obligations. Fill out our simple and secure auto loan request form to get the process of getting connected to a dealer started today.