When you’re preparing for an auto loan with bad credit, you may be considering a cosigner to boost approval chances. But do you actually need one?
Do You Need a Cosigner for a Car Loan?
A cosigner is someone that signs onto the auto loan with you to increase your approval odds if your credit score isn’t good. Your cosigner “lends” you their good (or great) credit score to help you meet lender requirements, and agrees to repay the loan if you can’t, which could lower your chance of default.
If your credit score is below 660 or your credit history is lacking, then a cosigner may be able to help you get the vehicle you want. However, if more income is what you need to qualify for a car loan, then a cosigner wouldn’t be able to help.
A cosigner can’t add their income to your own to help you meet the income requirements of an auto lender. In fact, their income is considered separate from yours, since they also need to prove that they can repay the loan if you become unable to.
If your income and work history are solid, and it’s just your credit score that needs help, then a cosigner could be your answer to getting an auto loan. Even if a cosigner isn’t required for you to get a loan, they may assist you in qualifying for a lower interest rate.
If you meet the credit score requirements of a bad credit auto lender, though, you may not need a cosigner. These lenders, called subprime lenders, are equipped to handle many unique credit circumstances if you can prove you have the chops to repay the loan.
However, if you need more income, you may have to explore other options.
Increasing Auto Loan Approval Odds Other Ways
Most subprime lenders require around $1,500 to $2,500 of gross monthly income from a single source. If you can’t meet this requirement, then you may have to explore other options outside of a cosigner to qualify for a car loan:
- Co-borrower – Not to be confused with a cosigner, a co-borrower is someone that shares responsibility for the loan and the vehicle. Your incomes are added together to meet lender requirements and/or qualify for a larger loan amount. Both borrowers are responsible for making the car payment each month, and both are listed on the title as owners.
- Bring a large down payment – Most subprime lenders require a down payment of at least $1,000 or 10% of the vehicle's selling price. By bringing a large down payment, it increases your approval odds by lowering the amount you're borrowing. This makes a vehicle more affordable each month and also lowers your monthly payment.
- Free up your other monthly expenses – If you’re on the edge of meeting the monthly income requirements, and a good chunk of your income is being eaten up by other bills, it could be tough to qualify for a car loan. Evaluate your monthly budget and remove unnecessary expenses, and consider an affordable vehicle that fits your budget. If your credit card payments are cutting deep into your monthly income, then paying down your credit card(s) can give you more available income and improve your credit score.
It’s not always easy to improve your income situation overnight, but freeing up monthly expenses, bringing a substantial amount down, or even adding someone else to the loan can improve your approval odds.
Finding Bad Credit Car Loan Options
Cosigners aren’t a one-size-fits-all solution to qualifying for a car loan. In many cases, sometimes all you need is a lender that can work with credit challenges. If you’re in search of a car loan and can’t find a cosigner or want to get a loan alone, then consider seeking out a special finance dealership that’s signed up with subprime lenders.
Here at Auto Credit Express, we want to make that search easier by looking for a dealer for you. Complete our free auto loan request form and we’ll look for a dealership in your local area.