A co-buyer on an auto loan isn't the same as a cosigner. While the terms cosigner and co-buyer may sound the same, they mean very different things. Both cosigners and co-buyers can help you qualify for a car loan but in distinct ways. One can help you get approved for a car loan if you have bad credit, while the other can help you meet the income requirements. Learning the differences between the two can help you determine which one is right for your situation.
Auto Loan Co-Buyer’s Role
A co-buyer, also called a co-borrower or co-applicant, is typically a spouse who signs an auto loan with a primary borrower. When a primary borrower and a co-buyer are spouses, they can combine incomes.
Having a co-buyer on a car loan can therefore help if the primary borrower lacks the income needed to qualify on their own, or if a married couple simply wants to team up in order to qualify for a larger loan than they'd be able to get individually. A co-buyer can also help a primary borrower qualify for better loan terms if they have better credit than them.
Co-buyers have equal rights to the vehicle and their name is put on the car's title alongside the primary borrower. They're also equally responsible for making payments, and receive protection in the event that the primary borrower declares bankruptcy – or vice versa.
Auto Loan Cosigner’s Role
A cosigner, a more common term you may have heard before, isn't the same as a co-buyer. A cosigner’s primary role is to help a primary borrower get approved for auto financing by attaching themselves to the loan. In a sense, a primary borrower “borrows” a cosigner’s good credit.
A cosigner doesn’t have any legal rights to the vehicle, and their name isn't put on the car's title. They also aren't expected to make the monthly payments, but they are legally responsible for paying them if the primary borrower is unable to.
If a primary borrower defaults, the lender can come after the cosigner for missed payments. The loan is listed on the credit reports of both, and any positive or negative action regarding the loan affects both of their credit scores.
In addition, if a primary borrower doesn’t have income that can be garnished, they may be able to use a cosigner to meet the income requirements. The lender verifies the cosigner’s income, but they can’t combine incomes like they can with a co-buyer – each has to be able to individually qualify for the loan.
If a primary borrower files bankruptcy and surrenders the vehicle, they receive protection, but the cosigner doesn’t. The lender can still go after the cosigner for any loan balance owed not covered by the current value of the car.
Cosigner vs Co-Buyer Similarities and Responsibilities
Cosigners and co-buyers (also called co-borrowers) have to sign the loan along with a primary borrower. This makes them legally obligated to it.
Both cosigners and co-borrowers provide an auto lender with more peace of mind. They act as a backup in case something goes wrong with the loan, such as the primary borrower not making their monthly payment.
The similarities don’t end there. Here are a few other things cosigners and co-buyers have in common:
- Lenders look at the credit scores and credit reports of both cosigners and co-borrowers to qualify them. This means they have to be able to meet the lender's credit requirements.
- Since cosigners and co-buyers are listed on the loan contract along with the primary borrower, they have to be present to sign the loan contract.
- Both cosigners and co-borrowers put their credit on the line for a primary borrower. Anything that happens with the loan, be it positive or negative, impacts the credit of both the primary borrower and the cosigner or co-buyer. Keep in mind that people with good credit typically take a bigger hit to their credit score as a result of a negative event.
- If the primary borrower doesn't make a payment, the lender can come to the cosigner or co-borrower for any back payment(s). If the loan goes into default, it can even be subject to collection efforts by a lender.
Key Differences between Cosigners and Co-Buyers
Even with all of the similarities shared by both cosigners and co-buyers, each plays a distinct role in helping a primary borrower get a bad credit car loan.
A cosigner’s key role in helping a primary borrower get an auto loan is a matter of credit. For example, if you have poor credit, a lender may require you to have a cosigner on the loan.
The purpose of a cosigner is to attach their good credit to a loan to help a primary borrower get approved. Therefore, having a good credit score is a cosigner requirement. Other than that, and agreeing to make payments if the primary borrower can’t, a cosigner doesn’t have any additional involvement.
Cosigners can be friends, coworkers, family members, or anyone else the primary borrower feels comfortable asking. They aren’t listed on the vehicle's title, and they must meet all of the lender's qualifications (minimum income, debt to income, payment to income, etc.) separately.
A co-borrower, on the other hand, can help a primary borrower who can't qualify due to income. Co-buyers who are spouses can combine incomes with a primary borrower to help them meet the lender's income requirements. This means the primary borrower and co-borrower qualify for a loan together, so neither needs to meet the lender's requirements on their own.
When primary borrowers add a co-buyer to a car loan, their name also appears on the vehicle's title, and they share equal rights to both the car and the loan.
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The bottom line is this: both a co-buyer and a cosigner can help you get approved for an auto loan, but it’s important that you know the difference between the two. You also need to understand the lender's requirements for a cosigner or a co-buyer and make sure you find somebody who meets them if you intend to have one.
Regardless of whether or not you have a co-buyer or cosigner, Auto Credit Express wants to help you find financing. Our service connects car buyers to local dealerships that understand and know how to work through a variety of credit situations.
Getting started is easy, free, and doesn't put you under any obligation. Go ahead and fill out our simple and secure auto loan request form to start the process today.