When you Cosign a Bad Credit Car Loan

Becoming a cosigner on a bad credit auto loan includes a number of responsibilities you need to be aware of before signing on the dotted line

Know your responsibilities

Before you cosign for any loan, especially poor credit car loans, you should know exactly what you’re getting into.

We’re well aware of this here at Auto Credit Express where we’ve been working in bad credit auto sales for over two decades. We’ve also helped hundreds of buyers get approved auto loans.

We also get a lot of satisfaction by helping buyers avoid a tote the note dealer (outside our retail areas you can submit an online car loans bad credit application to find a nearby dealer) while showing them the loan process (to reduce the chance of repossession).

Co-borrowers

But the fact is, not all bad credit borrowers are able to rebuild auto credit on their own. This means that an additional person is sometimes needed in order for them to qualify for a bad credit car loan. There are also two ways this can be handled and you should know the difference.

There are two ways that someone can be added to the finance contract of poor credit car loans – either as a co-signer, or as a co-buyer. Although the terminology is different, there are a number of things that are similar for both:

1.    Both a co-signer and co-buyer are considered co-borrowers and equally responsible for a loan. If the primary borrower is unable to meet the loan obligations, than both co-signers and co-buyers are expected to make the loan payments.

2.    Both types of co-borrowers are signatories on the loan. This means that in addition to the primary borrower, their names appear on the loan and both sign the loan documents.

3.    In addition to the primary borrower, both a co-signer and a co-buyer can be subject to collection action, including wage garnishment, if the loan goes into default.

4.    During the application process, the lender will review the credit reports of both types of co-applicants and take their credit information into consideration.

The difference is income

While the credit backgrounds of both types of co-applicants are considered, lenders look at their incomes differently. In fact, the bank will classify a co-applicant as either a co-signer or a co-buyer depending upon how their incomes relate to that of the primary borrower.

Co-buyer – This individual’s income can be added to (co-mingled) an applicants income in order to meet the lender’s income requirements. The combined income of both is used to qualify for a loan. In most instances, this means that the co-buyer is either the husband or wife of the applicant.

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

Persons who qualify

As a rule, it’s easier for someone to qualify as a co-applicant if they are related to the primary borrower. In most cases, wives and husbands are usually recognized and treated by lenders as co-buyers 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-signers, since their incomes usually cannot be co-mingled with that of the primary borrower.

The Bottom Line

Before co-signing for horrible credit auto loans, you should be sure you know exactly what you’re agreeing to – which includes the possibility of making the loan payments, yourself, if the primary borrower is unable to.

Auto Credit Express specializes in placing customers with bad credit with dealers that can help them. These dealers are knowledgeable and work with a range of lenders to ensure you have your best chance at getting approved for a car loan.

So if you’re serious about getting your car credit back on track, you can begin by filling out our bad credit car loan application now.

Posted on June 4, 2011 by in Auto Loans, Bad Credit
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