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Understanding Cosigners for Car Loans

When you have poor credit or a limited credit history, securing an auto loan can be challenging. Even if you qualify, you might face high interest rates. Applying for a car loan with a cosigner who has good credit could make it easier to get approved and help you secure a more favorable interest rate. Consider getting a cosigner if you’re not satisfied with the loan terms you can get on your own.

What Is a Cosigner?

A cosigner is someone who applies for a loan with you and shares responsibility for repaying it. Although a cosigner does not co-own the vehicle, they are listed on the loan agreement and must make the loan payments if you can’t. The lender considers both your and the cosigner’s credit histories and finances when reviewing your loan application. A cosigner’s good credit history helps reduce financial risk to the lender, which may help you qualify for a loan you might not otherwise get.

When Do You Need a Cosigner for a Car Loan?

You might need a cosigner for an auto loan if:

• You have little or no credit history.
• Your debt-to-income ratio (DTI) is too high.
• You don’t have good credit.

Pros and Cons of Buying a Car With a Cosigner

Pros of Using a Cosigner

• It can help you get approved.
• It could qualify you for a better interest rate.
• It can help you build credit.
• It could help you afford a better car.

Cons of Using a Cosigner

• You could end up with a loan you can’t afford.
• Your credit (as well as your cosigner’s) could suffer.
• It could cause personal conflicts.

How to Get a Car Loan With a Cosigner

To get a car loan with a cosigner, follow these steps:

1. Find a lender that allows cosigners.
2. Choose a potential cosigner.
3. Talk to your cosigner.
4. Check your credit reports and credit scores.
5. Shop around for a loan.
6. Apply for the loan.

How to Improve Your Credit Score

Getting a cosigner isn’t the only way to get an auto loan. Increasing your credit score could enable you to buy a car without a cosigner. If you can’t find a cosigner or just don’t want to go that route, take these steps to build your credit:

• Pay down debt.
• Catch up on late payments.
• Pay your bills on time.
• Avoid applying for new credit.

The Bottom Line

If your credit score is less than stellar, applying for a car loan with a cosigner can help you land a better loan than you might get on your own. Once you receive the loan, commit to making your payments on time so your cosigner doesn’t have to step in. To see how on-time loan payments affect your credit, sign up for free credit monitoring from Experian to track your FICO® Score and get important alerts to changes in your credit report.

For any mortgage-related needs, call O1ne Mortgage at 213-732-3074. We’re here to help you navigate your financial journey with confidence.

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