As long as someone has good credit, and the required income, they can qualify to be a cosigner on a car loan. Cosigners let you “borrow” their good credit in order to help you get approved for an auto loan. They can be a family member, close friend, or anybody else you feel comfortable adding to the loan, but there are cosigner requirements they have to meet.
What Are the Requirements for a Cosigner?
Although having a cosigner isn’t always required, subprime lenders may ask a borrower to have one if they have bad credit or no credit history. Adding a cosigner to a car loan can help increase your approval odds.
When it comes to just who, exactly, can be a cosigner, it comes down to having good credit and enough income. Lenders generally require a potential cosigner's FICO credit score to be around 700 or better, although the specifics vary by lender.
The lender then "debts out" your cosigner to make sure they can fit an auto loan into their budget. This is required because a cosigner is responsible for the loan payments in the event you, the primary borrower, doesn't make them.
Lenders debt out cosigners by calculating their debt to income (DTI) ratio to make sure they have enough available income to cover the loan payment. Bad credit lenders typically require a DTI ratio of 45% to 50% of their income or lower.
To calculate the DTI ratio, simply add up all monthly bills, including the estimated car payment, and divide that amount by the cosigner’s pre-tax monthly income.
Can My Spouse Be a Cosigner?
If you’re married, you could include your spouse as a cosigner. However, in this case you’re better off making them a co-borrower. Co-borrowers aren’t the same as a cosigner in that they share ownership rights to the vehicle. Your spouse’s name is listed on the title, and they can legally take the car from you – cosigners can’t.
Why should you make your spouse a co-borrower instead of a cosigner? The biggest reason is that you can combine incomes with a co-borrower who is a spouse, which could potentially allow you to qualify for better loan terms than you would on your own.
If your individual budget is tight, this could be a huge advantage. Keep in mind, however, that in the event you and your spouse decide to divorce or separate, you’re both still responsible for the loan payments.
The only way you can remove a co-borrower or cosigner is to refinance your auto loan. This means you must qualify for the car loan on your own. If you needed a cosigner or co-borrower to get you approved, you may not be able to qualify for a new loan so easily. To read up about adding and removing cosigners and co-borrowers from a joint loan, click here.
The Bottom Line
Even if a lender says a cosigner isn’t required, it doesn’t hurt to ask someone you trust about becoming a cosigner for you just in case. Keep in mind that whoever you ask to cosign must have good credit score and a qualifying income.
If you have a cosigner or co-borrower ready but don’t have a dealer to work with, we can assist you. At Auto Credit Express, we have over 20 years of experience connecting bad credit borrowers to local special finance dealerships that have lending resources available to work with many types of credit situations.
All you need to do to get the process started is fill out our auto loan request form. It’s free, and comes with no obligation.