Things to Know when Cosigning a Bad Credit Car Loan

Both cosigners and co buyers are as responsible as the primary borrower in all loans including auto loans for bad credit

The difference

Our bad credit auto loan web site at can help you if you’re serious about reestablishing your auto credit. By filling out the online car loans with bad credit loan application you can begin a new chapter in your life by getting approved at one of our affiliate dealers for a bad credit auto loan. Along with paying the rest of your obligations on time, you will then be able to raise your FICO scores and re-establish your car credit.

The alternative, buying a vehicle from a tote the note car dealer, can be a problem because the majority of these dealers don’t report your payment history to any of the credit bureaus. On the other hand, taking out a loan with a bad credit lender and choosing a vehicle that’s too expensive can also create problems since this can stretch your budget and might even result in repossession. If this happens, rebuilding your car credit has to be put on hold for at least a year, since most bad credit auto loan lenders will only consider applicants with a repossession on their credit report that’s over a year old.

You should also be aware of the fact that you may not be able to rebuild your car credit on your own. This means that there is the possibility that you may need an additional person on the finance contract in order to qualify for auto loans for bad credit. But there are also two different ways to approach this and if the banks know the difference, you should too.

Co-signers and co-borrowers

There are two ways of adding an individual to the finance contract of a bad credit car loan. Another individual can be added as a co-signer, or a second person can be added as a co-borrower. Although the terminology used is different, there are a number of things that are similar when it comes to both co-signers and co-borrowers:

1.    Both co-signers and co-borrowers are considered co-applicants and, as such, they are equally responsible for the loan. If the primary borrower is unable to meet the loan obligations, than the co-signer or co-borrower is expected to make payments on the loan.

2.    Both the co-signer and co-borrower are signatories on the loan. This means that in addition to the primary borrower, the co-signer or co-borrower appear on the loan as well as sign the loan documents.

3.    Both co-signers and co-borrowers, along with the primary borrower, can be subject to collection action that includes wage garnishment in the event the loan goes into default.

4.    During the loan application process, the lender will review the credit reports of the co-borrower or the co-signer and take their credit histories into consideration for the approval process.

How income is treated

While the credit histories of both types of co-applicants will be taken into consideration, lenders treat the incomes of each type of co-applicant differently. In fact, the bank will classify a co-applicant as either a co-signer or a co-borrower depending on how their income relates to that of the primary borrower.

Co-signer – This individual’s income can be added to (commingled with) the applicants income in order to meet the income requirements of the lender. The total income of both individuals is used to qualify for the loan. In most instances, this would mean that the co-signer is the husband or wife of the applicant.

Co-borrower – While the credit score of this individual will be considered in meeting the credit requirements of the loan, the co-borrower’s income will not be added to that of the borrower in order to meet the income requirements of the loan. This means that the incomes of both the primary borrower and the co-borrower have to individually qualify for the income requirements of the loan.

Who qualifies as a co-applicant?

As a rule, it is easier for someone to qualify as a co-applicant if they are related to the primary borrower. As was stated previously, wives and husbands are usually recognized and treated by the lender as co-signers on a loan. Fathers, mothers, sisters, brothers, grandmothers, grandfathers as well as sons and daughters who are co-applicants are usually considered to be co-borrowers, since their incomes usually cannot be co-mingled with that of the primary borrower.

As we see it

At Auto Credit Express, we want you to be aware of the different aspects of a bad credit car loan. Over the past 20 years, we have helped thousands of people with bad credit find a dealer in their area that specializes in bad credit car loans and can help get them financed.

So if you are serious about reestablishing your car credit, you can begin the process right now by filling out our secure online bad credit car loan application to see what we can do for you.

Posted on September 25, 2010 by in Auto Loans
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