Key Takeaways
A co-signer has huge influences in terms of a loan you can get. And depending on how much money you make and how good your credit is, you may need a co-signer to get any loan. A lender might offer a new car loan with an interest rate of 4.5% for 72 months with a co-signer. And the same loan can have 9% interest if you don't have one.
You'd pay more than twice as much in interest, which can cost you thousands of dollars more over the life of your car loan. If you had a co-signer, you could get a much lower interest rate. If you don't want them to, a co-signer doesn't have to pay or help with any part of the loan.
A co-signer may increase your chances of getting approved, give you access to better loan terms, and, as you pay back your auto loan over time, help you improve your credit score.
If you don't have a long credit history or a low credit score, a co-signer can help with your application. Lenders will likely give you a loan if they see someone else backing it.
Rates may also be lower if the co-signer has good credit (a score of 670 or higher) and a high income. The average rate for subprime borrowers in 2022 was 9.75%, while the average rate for prime borrowers was 4.03%. Getting a loan with a lower interest rate can save you thousands of dollars over the life of the loan.
A co-signed car loan will help you build your credit history. As you make payments on time, your credit score will also go up on its own. If you already have loans or credit cards, getting another loan could lower your credit utilization ratio, which would help your score even more.
Most lenders have minimum income requirements before giving out loans. As the main person applying for the loan, the lender will only look at your income to see if you meet the requirements. Your co-signer's income won't be taken into account here. Your co-signer's income won't be added to yours to help you meet the minimum income requirement.
But a co-signer has to prove that they have enough money to pay the monthly car loan payments if you don't. If you want to buy a car, the most important thing to know is that a co-signer is useless if you need more income to get a loan.
There is a big difference between a co-signer and a co-borrower, who is also sometimes called a co-applicant. It's important to understand how these two ways of buying a car are different.
When you get a car loan with a co-signer, that person does not own the car. They just agree to pay for your car if you can't. On the other hand, a co-borrower also owns a part of the car. The co-borrower is just as responsible for the payments as you are as soon as the loan is made. When getting a loan with a co-borrower, both people involved can own the assets used as collateral without any issues.
It's important to remember that a co-signer and a co-applicant are not the same. When you buy a car with someone else, you both own it. Their income and credit history are added to yours to determine if you can afford the car together.
On the other hand, a co-signer doesn't own anything. They are only there to help your credit score so you can get a loan with better terms.
Before applying for an auto loan, you should think carefully about whether you need a co-signer. In some situations, it might not be a good idea based on your needs and money. But in some, they are not.
The car isn't in your budget
Even with a lower interest rate, if the car is still too expensive for your budget, it's best not to buy it. You might want to wait to buy the car until you can save up more money for a bigger down payment so that the loan amount fits better with your income and monthly budget. You may also want to work on improving your credit score, which will allow you to receive a lower interest rate and more affordable loan installments.
If you need a car immediately, look for a used one that costs less. Most of the time, used cars are cheaper. Even if you still require a co-signer to get a loan, you can get a car with many of the same features as a new one without going broke. Before getting a loan or shopping for a car, you should always figure out how much money you can spend.
You expect conflict with your co-signer
When someone agrees to back your loan, they take on a lot of risks. If you fail to pay, your co-credit signer's score will also go down. If the lender takes legal action, this could also affect their other finances.
Of course, this could put a strain on your relationship that might not be able to be fixed. Your relationship with your co-signer could also go bad for reasons that have nothing to do with the loan. If things get hard, consider how to get rid of a co-signer.
Applying for an auto loan can be easier to get approved if you have a co-signer. Most of the time, you can get a loan with better terms and lower monthly payments. A co-signer can be especially helpful if you're just starting to build credit or your credit score could use some work.
Consider your other options before asking a co-signer to help you get a loan. Planning for a bigger down payment can make it easier on your budget to buy a car. Also, raising your credit score can help you get a better interest rate.
A co-signer can help you build up your credit, which will improve as long as you pay back your loan on time. Since a co-signer usually has better credit or a higher income, they could help you get a loan for a car you might not be able to afford on your own.
Being a co-signer or co-borrower for a loved one or business partner can lower your borrowing costs or even help you obtain a loan they would not otherwise qualify for. But this is only possible because the lender will hold the co-signer liable for the debt if anything goes wrong.
Lenders usually approve your loan if they see that someone else is guaranteeing it. Increase your chances of getting favorable terms. A co-signer with good credit (a credit score of 670 or higher) and a high income may also result in lower rates.
There is no required minimum credit score to obtain a car loan. Some lenders may not require your co-signer's credit score, whereas others may require a minimum of 670. In general, the higher your score, the better your chances of approval.