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Does Having a Cosigner Increase Your Chances of Getting an Auto Loan?

Milad Hassibi July 26, 2018

If you are looking to purchase a new car with less than ideal credit, your auto lender may ask that you bring on a cosigner.

A cosigner must meet certain requirements, which includes having a healthy credit score along with a stable and secure form of income.

You can easily increase your chances of getting a loan with a cosigner. Bringing on a cosigner will help ease the lenders worry about your ability to repay.

Chances of Getting Approved with a Cosigner

There is no clear-cut equation to find out if your chances of getting approved increase for a cosigner.

However, if your income is at least $1,600 per month pre-tax and you have had a job for the past 6 months or more and just have poor credit, your chances of approval will increase significantly with a cosigner.

Even if you have been approved for an auto loan with bad credit, having a cosigner can help increase the loan amount you qualify for.

Pros and Cons of Consigning an Auto Loan

Pros of Cosigning an Auto Loan

So what is the cosigners responsibility when it comes to an auto loan? A cosigner’s job to act as a A couple signs the papers to a car with up and down thumbs next to them“balancer”, helping to boost your odds of approval for an auto loan.

Although requirements can vary from lender to lender, most lenders will require a cosigner if you have less than perfect credit or have a limited credit history.

Once you do find a cosigner, however, your chances of getting approved with a cosigner increase significantly.

An auto loan cosigner can also benefit from their role. When the primary borrower pays their auto loan payment on time and in full, the cosigners credit score will increase throughout the life of the loan.

Cons of Cosigning an Auto Loan

Although being a cosigner is a great way to increase your chances of getting approved for an auto loan, many people are not comfortable with the potential downsides to cosigning.

Some of the main drawbacks that result from cosigning include:

The Cosigner Must Pay if the Borrower Doesn’t

Being a cosigner is risky business. As a cosigner, you are legally obligated to make payments on the auto loan if the primary borrower fails to do so. If the main borrower refuses to pay their loan back, the cosigner is obligated to do so.

When you cosign, you also allow the main borrower to “use” your credit. If payments are late and the primary borrower falls behind, your credit score will be affected as well.

Harder to Get Credit

Even as a cosigner, the debt you cosign for will be added to your credit report as an “obligation”, meaning it must be paid. If the cosigner is looking to apply for a new line of credit for themselves, the potential lender will factor in the cosigned loan as a current debt.

This will have an effect on a cosigners debt to income ratio, an important ratio used by almost all lenders. If you cosign for somebody, you may have a harder time getting a line of credit yourself.

Cosigner Removal

The only way to remove a cosigner is by refinancing your auto loan. Once the loan document is signed, a cosigner cannot simply leave the arrangement.

If the primary borrower does not qualify for refinancing, the cosigner will be stuck with the loan on their credit report.

However, note that a cosigner cannot simply take possession of a vehicle from you. A cosigner is not listed as an owner of the vehicle.

What to do if I Can’t Find a Cosigner?

For consumers who have difficulty finding a cosigner, you may have to work with a Buy Here Pay Here dealership (BHPH). A BHPH dealership works specifically with consumers who have bad credit.

Typically, the cars sold at a BHPH dealership are older and have much higher mileage. Also, a BHPH dealership may require bi-monthly payments on an auto loan to be made right at the office. You may not be allowed to simply mail them a check or pay online.

Learn about all the auto loan cosigner requirements here.

Final Note

All in all cosigning is a risky business, and should only take place if you have a significant relationship with the person you are cosigning for. If you are looking to buy a new car but are in need of financing, CrediReady can help.

Our nationwide network of trusted dealers and verified lenders work with buyers in all credit situations. Take a moment to fill out our free no-obligation loan inquiry form and start shopping for your dream car today!

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