If you’re being asked to bring a cosigner along for an auto loan, it’s likely because your credit score isn’t quite up to par. Here’s how cosigners can help, and other options to explore if your credit score is less than perfect.
Cosigners Help Bad Credit Car Buyers
Enlisting a cosigner can increase your chances of getting approved for vehicle financing. They promise to repay the loan if you can’t and help you meet the credit score requirements of a lender. Since many lenders have a credit-score cutoff, if you don’t meet the qualifications on your own, then a cosigner could be your answer.
The key to a good cosigner is finding one with at least a better credit score than yours. Preferably, a cosigner with a credit score higher than around 660 would give you a better chance of getting your hands on an approval. A cosigner’s main purpose is to add security to the loan. With the cosigner responsible for the loan’s balance if you’re unable to pay, it lowers the chance of default and therefore increases your chances of getting the vehicle.
However, cosigners can be tough to find. They take on a lot of risk by assisting you in getting approved for a car loan since their credit score is impacted by the activity on the loan. If you start to miss payments, default, or the vehicle gets repossessed, the lender can come after the cosigner for the loan balance – and their good credit score can be severely damaged.
You may feel stuck when you apply for a car loan and you’re told the only way to get approved is by having a cosigner. However, it may not be your only shot at getting the vehicle you need.
Bad Credit Auto Loans
Another word for bad credit is subprime. For borrowers with credit scores around 660 and below, and for those with no credit history or credit issues in general, subprime auto financing could be an answer to your no-cosigner problem. Because subprime lenders specialize in assisting borrowers with poor credit, a cosigner may not be required for a subprime loan approval.
Subprime lenders are partnered with special finance dealerships. Instead of sitting across from the lender, you meet with the special finance manager at the dealership. They send your information along to the lender along with your documents proving you’re ready for a car loan. If one of their lending partners accepts your application, the finance manager gets the lender’s payment call. This spells out the maximum car payment you qualify for based on your current financial situation.
From there, with an approval and max monthly payment in hand, you shop for a vehicle on the dealer’s lot. Once you find one that fits your circumstances and fulfills the lender’s stipulations (such as mileage, loan amount, and age), you take delivery!
Requirements of Bad Credit Auto Loans
While you may not need a cosigner to qualify for a subprime car loan, there are still base requirements you must meet.
Lender specifics vary, most subprime lenders have these stipulations:
- Monthly income – Prove you have a minimum monthly income of around $1,500 to $2,500 from a single source. Computer-generated check stubs do the trick if you have W-2 income. For other income sources, two to three years of tax returns and/or bank statements may be required.
- Skin in the game – Down payments are almost always expected from bad credit borrowers. Many subprime lenders require at least $1,000 down or 10% of the vehicle’s selling price. Can be cash, trade-in equity, or a combination of the two.
- Working phone – In case the lender needs to contact you about your loan status, you must prove you have a working contract cell phone or landline in your name with a recent phone bill.
- Current address – Borrowers must prove they have a stable, permanent address. Prove your residence with a recent utility bill in your name or a bank statement. The longer you’ve lived at the same address, the higher your approval odds could be.
- Valid driver’s license – To drive the car off the lot, register the vehicle in your name, and buy auto insurance, you need a valid driver’s license. Your license can’t be suspended, revoked, or expired, and must list your current address.
- Personal references – Most subprime lenders require a list of five to eight references, with their complete contact information such as phone number, address, and email. One of the only stipulations with personal references is that they can’t currently share your home address.
If you choose to go the subprime car loan route, know that some lenders may require more items to qualify or even fewer items. Bankruptcy borrowers may be required to bring additional documentation, such as discharge papers. Depending on your income and the size of the loan you’re looking for, you may need a larger down payment as well.
The bottom line is that your personal situation largely dictates how subprime financing is likely to go for you. Since your credit score isn’t the most important aspect of the approval process, subprime lenders dive deep into your overall financial stability and situation to determine if you’re eligible for auto financing and then work from there.
Get a Move On With Us
When you don’t have a cosigner to pull you out of the bad credit rut, finding a dealership with bad credit resources can be tough. But with over 20 years of experience in connecting borrowers to dealerships that are able to assist bad credit borrowers, we want to extend a helping hand.
Auto Credit Express is an online service with a nationwide network of dealers that are signed up with subprime lenders – and we want to look for one in your local area. Get started right now on your path to a vehicle by completing our free auto loan request form. We’ll look for a dealership in your area for free, securely, and with no obligation.