If your credit score is below 660 or if you want a chance to benefit from a lower interest rate, then having a co-signer could give you an advantage. Here’s how co-signers can help you, what their rights are, and some other car loan options to consider if your credit is poor.
Find an eligible co-signer
Almost anyone can be your co-signer on a car loan. Your cousin, friend, coworker, roommate, relative – your relationship with the person doesn’t matter. The only person that lenders do not accept as a co-signer is your spouse.
In order for your co-signer to be eligible, they must generally:
In order for your co-signer to help you in your search for a car loan, they must have a decent credit score, sufficient income to pay off the loan if necessary. and have enough room in their budget to do so.
Once you’ve found a co-signer with a good credit score and sufficient disposable income, you can take them with you to apply for a car loan! Both of your credit reports are pulled, you both need documents proving you are able to repay the loan (like check stubs) and proof of a working phone, proof of residence and driving license.
Understand your rights as a primary borrower
If you find a co-signer and you qualify for a car loan, then it is important to know and understand your rights and responsibilities, and to inform the co-signer of theirs.
The co-signers add security to the car loan because they agree to repay the loan if you become unable to do so. Lenders may be wary of approving borrowers with low credit scores or tarnished credit histories. A co-signer can increase your chances of approval because they act as the back-up payer.
Although you have a secondary payer on the car loan, you are the primary borrower. This means that you have all rights to the vehicle and that it is your responsibility to make payments for the car each month. Your co-signer is not there to help you make the monthly payments – they are the last resort. If you go down the default path or lose your income and cannot make payments, this is when the co-signer is called upon to act in most cases.
Since you are the primary borrower, you have the final say on what happens to the vehicle and its loan. Your co-signer can’t take your car, sell it, or terminate the loan because they don’t have the authority to do so. You can end the loan agreement by paying off the lender without having to consult with the co-signer or ask for their permission (although it can be polite to let them know if you do!).
Understanding the impact of credit score
You and the co-signer are both affected by the payment history of the auto loan. If you make all payments on time, both of your credit scores may improve over the life of the loan. However, the reverse is also true. If you miss a few payments or are consistently late, both of your credit scores could go down.
Finding a Bad Credit Auto Lender
Even if you have a co-signer to lend you their good credit rating, some lenders may still be wary if your credit history is tarnished.
Credit unions and subprime lenders tend to be the most willing to lend to consumers with credit problems. Credit unions are member-owned and may be willing to work with less than perfect credit if you are a long-time member and have maintained a good account history with them. However, borrowers facing serious credit issues such as bankruptcy, repossession, or multiple negative ratings may need to seek risk financing.
Subprime lenders are registered with special finance dealers. They often help borrowers in difficult credit situations and may not even require you to have a co-signer if they can meet the requirements on their own. Bad credit is no stranger to these lenders, and not everyone has the luxury of a co-signer, so subprime auto loans are a great option for bad credit borrowers in need of auto financing.
Co-signer or not, we want to help you find the auto purchasing resources you are looking for. Here has Auto Express Credit, we have created a nationwide network of special finance dealers who are equipped to handle many unique credit situations. Once you’ve completed our free auto loan application form, we’ll search for a dealership in your area. Start now!