A co-signer is someone who accepts the responsibility of paying off a loan should the primary borrower fail to do so. Getting a co-signer on a car loan is often necessary for borrowers who have a poor credit history or insufficient income. When evaluating the borrower’s loan application, the lender considers the co-signer’s creditworthiness. And this may lead to more favorable rates.

Having a co-signer is a commitment that also comes with risks. Aside from vouching for the borrower, the co-signer may be responsible for making monthly payments and paying late fees if the borrower stops paying. Late payments may also reflect on the co-signer’s credit report. Additionally, this setup requires a certain level of trust and deserves careful consideration, as any issues can affect the relationship.

Before you get an auto loan with a co-signer, make sure you understand how it works and weigh the pros and cons. Discuss the details with your prospective co-signer to avoid any misunderstanding.

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How Does Co-Signing for an Auto Loan Work?

You can choose anyone to be your co-signer — a relative, co-worker or friend. However, there are qualification requirements for a co-signer. These may vary per lender but usually include a decent credit score and income.

A co-signer may be beneficial to you if you find yourself in the following situations:

  • You have limited or poor credit.
  • Your debt-to-income (DTI) ratio is very high.
  • You’re only getting high interest rates.
  • You have insufficient employment history or a recent gap in your employment.
  • Your auto loan application is rejected.
  • You don’t meet the income requirements.

You can apply for an auto loan with a co-signer via banks, credit unions, financing companies or online lenders. Your chosen lender will evaluate your co-signer’s creditworthiness. Based on this, you may get more favorable terms, such as lower interest rates or monthly payments. Having a co-signer can also help you build your credit history. As you make on-time payments, your credit score improves.

Co-Signer Requirements

Generally, anyone can be your co-signer. You can choose a family member or a friend. Some may even ask a co-worker. What’s important is that your co-signer meets the eligibility requirements the lender sets. These may vary but commonly include:

  • Credit score: The credit score requirement depends on the lender. But usually, a co-signer must have at least good credit.
  • Employment and income requirements: Lenders also check employment and income. These help them determine whether a co-signer can repay the loan if the primary borrower defaults. The co-signer may need to submit proof of income.
  • Debt-to-income (DTI) ratio: The DTI ratio refers to the percentage of income used for paying debts. You can calculate this by dividing total monthly debt payments by gross income. Multiply the result by 100 to get the percentage.
  • Credit history: Lenders also check the co-signer’s credit history, which reflects how they have managed debt repayments. It also shows the types of accounts they have, how much they owe on each and their payment history.
  • Proof of identity and citizenship: Lenders may also ask for a government-issued ID, birth certificate or passport. Note that typically, lenders also only accept U.S. citizens to be co-signers.
  • Proof of residence: This can be supported by a utility bill, government-issued ID or property tax bill.

Co-Signer Rights and Responsibilities

Co-signing an auto loan comes with responsibilities. Make sure your co-signer understands these before you apply for a loan. They should also be aware of their rights as co-signer.

  • Making loan repayments: Co-signers take on financial responsibility. They don’t only vouch for borrowers. If the primary borrower fails to make payments, the lender will go after the co-signer for the payments, including late fees, interest and any additional penalties.
  • Access to assets attached to the auto loan: Your co-signer doesn’t have rights to the car the loan is paying for. They’re simply your financial guarantor. Additionally, their personal property will not be in danger even if you fail to make payments.
  • Repayment if the borrower defaults: An individual who agrees to be a co-signer for an auto loan takes the responsibility of paying for the debt if the primary borrower doesn’t. That means they may face collections for the loan amount in the event of a default.
  • Monitoring loan transactions: Your co-signer should also check their credit report from time to time. This allows them to see whether payments are made on time and in full. They may also set up notifications from the lender to know when a payment is late and easily track the progress on repayment.
  • Removing a co-signer: You can remove a co-signer through refinancing your auto loan. But depending on the lender, you may be able to release your co-signer from the loan without refinancing. This is usually only possible if you’ve met a certain number of consecutive on-time payments, which varies per lender. Details are often found in the loan contract.

Co-Signing Risks

Although co-signing can be beneficial to you, it also comes with risks. Both the borrower and co-signer face potential credit and financial issues.

Since the borrower and co-signer share the same financial responsibility, both will see the auto loan’s impact on their credit. Your auto loan will be recorded on your and your co-signer’s credit reports. So if you miss payments or default, both credit scores will drop. That could result in you or your co-signer being denied other loans in the future.

Additionally, co-signing can affect your personal relationship. If you miss payments, your lender may go after your co-signer for repayment, late fees and interest. This could cause a conflict with your co-signer.

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A CO-SIGNER IS NOT A CO-BORROWER

Before getting a co-signer, it’s crucial to understand how it differs from a co-borrower. Although both can help you get an auto loan, the roles and responsibilities vary.

A co-borrower shares ownership of the vehicle you’re purchasing through an auto loan. Like the primary borrower, they’re also in charge of making payments. They may also use their assets as a guarantee or collateral, putting them at risk.

A co-signer isn’t a co-borrower. The co-signer is only financially responsible when the borrowers fail to fulfill their payments.

Pros and Cons of Getting an Auto Loan With a Co-Signer

Co-signing an auto loan comes with pros and cons. It’s important to consider these first before applying for a loan. Make sure the pros outweigh the cons. You should also take extra steps to avoid the potential drawbacks of having a co-signer.

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When Do You Need a Co-Signer for an Auto Loan?

Lenders don’t approve all loan applications because they consider some people high-risk borrowers. It may be due to poor credit or insufficient income. In such a case, having a co-signer can increase your chances of being approved.

Co-signing an auto loan may not be the best solution for everyone. But it may be an option worth considering if you find yourself in any of these scenarios.

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YOU HAVE A POOR CREDIT SCORE

Your credit score plays an important role when applying for a loan. Although you may find you can get an auto loan with bad credit, having a co-signer gives you access to more favorable terms. You may also get lower monthly payments or better interest rates.

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YOU CAN’T MEET THE DOWN PAYMENT

Buying a car requires you to shell out money for initial costs like the down payment. This can be overwhelming. For instance, individuals with relatively low salaries may find it challenging to meet approval requirements to purchase a car. That may lead to the lender offering you a higher interest rate on your auto loan.

To avoid this, some lease their car instead of getting a loan, which typically requires a low to no down payment. But that comes with its own set of advantages and disadvantages. If you prefer to buy, getting a co-signer for your auto loan could be a good option.

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YOU MIGHT STRUGGLE WITH THE MONTHLY PAYMENTS

Lenders calculate monthly payments based on your credit history, DTI ratio, interest rates and loan amount. Depending on these, you may end up with substantial monthly payments. A co-signer can help you get lower monthly payments.

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YOU LACK CREDIT HISTORY OR INCOME

One of the most common reasons a person doesn’t get approved for an auto loan application is insufficient credit history or income. A co-signer with a good credit history and steady income increases your chances of getting approved for a loan.

Factors to Consider When Choosing a Co-Signer

Lenders typically require borrowers to meet certain minimum qualification requirements. The same applies to co-signers. The following are some of the most common factors that lenders consider when evaluating a co-signer:

  • Creditworthiness: Your co-signer must have sufficient credit history and a good credit score. Lenders may also check how your co-signer has managed previous debt repayments. Your co-signer can get a free credit report from AnnualCreditReport.com.
  • Financial fitness: You must show the lender that your co-signer can pay off your loan on their own if you default. Make sure your co-signer has a steady income.
  • Steady relationship: Co-signing an auto loan requires a certain level of trust. It puts your co-signer’s credit and finances at risk. That’s why it’s important to choose someone you can turn to if you encounter issues. Your co-signer should also have trust in you since they’ll have to face the consequences if you fail to pay your debt.

Before choosing a co-signer, review the lender’s qualification requirements. This way, you’ll have a higher chance of getting approval. Some lenders include this information on their websites. You may also contact lenders to ask about taking out an auto loan with a co-signer.

Getting an Auto Loan With a Co-Signer

Getting a co-signer on a car loan requires you to complete certain steps. Check the specific requirements and process with the lender. Although the process may vary per lender, there are general steps you can take to help you get started.

1
Find a co-signer you trust

If you think co-signing an auto loan is the right route for you, finding a co-signer you trust is critical.

2
Assess the co-signer’s qualifications

You should also ensure that your co-signer meets the lender’s qualification requirements. Ask about their income and credit score.

3
Discuss the rights and responsibilities of the co-signer

Explain the situation to your co-signer. Make sure they understand the responsibilities they have to take on. Gather information about the lender, the vehicle you plan on buying and the loan terms. It may also help to include them when shopping around for the best auto loan.

4
Check multiple auto loan lenders

One of the best ways to find the right auto loan is to compare lenders and loan offers. Get personalized quotes if possible. Check which has the most favorable rates and terms. But be careful when applying for auto loans. Some lenders may immediately conduct a hard credit check, which can affect your credit score.

5
Get pre-approved for an auto loan

It would help to find lenders that offer pre-approval. This will give you an idea as to how much your total debt will be. In most cases, lenders also only conduct soft credit inquiries for pre-approval.

6
Evaluate the auto loan offer

Review the offer. Make sure you understand all terms and conditions. Don’t forget to read the fine print to avoid unexpected fees and penalties. Give yourself some time to think the loan through. A day or two may do. This way, you can reflect on the possible implications of having an auto loan.

7
Finalize your auto loan

Once you’re 100% sure about the auto loan, you can proceed with the application process. Check what documents and information you and your co-signer need to prepare. Complete the application form. Then, submit it with the supporting documents.

8
Monitor your auto loan transactions

Keep track of your progress and avoid late or missing payments. You can ask your lender to send monthly loan statements or notifications for late or missed payments. You can also have your co-signer receive notifications for missed payments. This way, you ensure that both of you are on the same page.

FAQs About Getting an Auto Loan With a Co-Signer

Before taking out a loan with a co-signer, you must be fully aware of the process, the advantages and potential pitfalls. MoneyGeek gathered the most frequently asked questions to help you make an informed decision.

Can you lower your auto loan payments with a co-signer?
How can I remove a co-signer from an auto loan?
How does an auto loan affect the credit of the co-signer?
Who needs to be insured when a car loan has a co-signer?

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About Christopher Boston


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Christopher (Croix) Boston was the Head of Loans content at MoneyGeek, with over five years of experience researching higher education, mortgage and personal loans.

Boston has a bachelor's degree from the Seattle Pacific University. They pride themselves in using their skills and experience to create quality content that helps people save and spend efficiently.


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The content on this page is accurate as of the posting/last updated date; however, some of the rates mentioned may have changed. We recommend visiting the lender's website for the most up-to-date information available.

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