Having bad credit can put you in a tough spot when you need a loan or line of credit for something important such as a car. Constantly getting denied an auto loan can be hard to take and you may even have thought about bringing on a cosigner to help your approval odds. A cosigner is a great way to give your application a boost and increase your chances of getting approved for that loan you need. But what are some of the requirements that a lender expects of a cosigner?
If you have decided to bring on a cosigner, there are a few important factors that you will need to know and also consider. Any lender, including subprime lenders, will have a specific set of cosigner requirements. We compiled some tips below on what you should look out for in a potential cosigner for an auto loan.
Strong credit score
If you are in need of a cosigner due to your bad credit, you need to be certain that your cosigner has good credit. A rule of thumb for many lenders is that a cosigner will need at least a 700 credit score or above to be able to cosign on an auto loan for you. Their higher credit score will be used as a balance against your less than ideal score. Bringing on a cosigner can greatly improve your chances of getting approved for that car loan that you need.
Banks and lenders love stability, after all, their goal is to make money in the least risky ways possible! Although employment stability is not necessarily a strict requirement for many lenders, it can greatly improve your odds of approval. As a rule of thumb, many lenders look for cosigners that have lived at a certain address for 5 years or more and are established and connected to their community.
Income and ability to pay
The reason why a lender would want a cosigner is so that they could go after them if you were to default on your loan payments. Typically, each lender will have their own income requirements for a cosigner dependent on the loan amount, the down payment, and other factors. The lender will also look at their current monthly expenses such as their rent, bills, and more.
If you decide that you want to use a cosigner on your next auto loan, it is important that you have a healthy and strong relationship with the cosigner. Signing an auto loan with a cosigner should not be viewed as a small task, as delinquencies and defaults will have a massive impact on not just your credit score, but also the cosigner.
Understand that your cosigner is taking a huge risk for you by putting their good credit score on the line for you. This is why it’s important to have a healthy relationship with your cosigner, as you will need a healthy open channel to communicate with them about the loan and if any issues come up.
If you are reluctant about using a cosigner or have a cosigner but still didn’t get the loan you were looking for, CrediReady can definitely help! CrediReady offers one of the largest databases that connects dealerships, lenders, and buyers in all credit situations. Take a few moments to fill out our free and confidential loan search form online and we will match you with a dealership in your local area that can meet your auto financing needs.