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Joint Auto Loans vs Co-signed Auto Loans: Which to Choose When?

  • Auto Refinance
  • Renee Martin
  • 7 minutes

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You’ll hear these terms bandied about quite often – but do you really know what they mean? Let’s help you understand the difference between a joint auto loan and a co-signed auto loan – including which to pick and when!

Most people shopping for auto loans seem to think that co-borrowing and co-signing on an auto loan are the same thing. While both of them are related to taking out a loan with the help of someone else, the difference lies in the degree of help involved. Will the other person be making payments on the loans, or are they only letting you piggyback on their credit? 

In this post, we break down what it means to sign on for a joint (co-borrower) auto loan vs. co-signed auto loan, and how to choose between the two.

Joint Auto Loan vs. Co-signed Auto Loan: A Snapshot

Joint Auto Loan (Co-borrowers)

Co-signed Auto Loan

1. Both co-borrowers share the responsibility of monthly payments in a manner decided between themselves

2. Both the co-borrowers are entitled to the use of loan funds

3. The credit scores of both co-borrowers will be considered in a joint loan

4. Joint auto loans are taken by married couples, business partners, and parents with adult children

5. Both the co-borrowers will jointly own the car at the end of the loan term

1.  Primary borrower is mostly responsible for monthly payments, with the co-borrower only stepping in if he defaults

2. Only the primary borrower can use the loan to buy a car

3. The co-signer’s credit score will be given more importance

4. Usually, parents or close friends can co-sign for an individual to help them score lower rates

5. Only the co-signer will own the car at the end of the loan term

What is a joint auto loan? 

  • In a joint auto loan, two people (called co-borrowers) apply for a loan together and have equal responsibility for paying off the loan.
  • Once the loan is closed, both applicants will jointly own the car. Both their names will appear on the title and registration.
  • The co-borrowers are also called ‘co-applicants’ and are usually trusted by each other to take equal responsibility for payments
  • Joint auto loans are commonly taken by married couples, business partners, long-term partners, parents, and children, etc.
  • Joint auto loans allow you to borrow larger amounts because of the reduced risk of default.

Whose credit is used for a joint auto loan?

When applying together for a joint auto loan, the lender will consider the credit scores of both the co-borrowers. You can split the monthly payments among the two of you in any way (50-50, 70-30, 60-40) as long as the full amount is paid on time. However, any default in either co-borrower’s payments will reflect negatively on both credit scores.

When should you consider a joint auto loan?

  • You can consider a joint auto loan if you are a married couple, long-term partners, or business partners looking to jointly own a vehicle.
  • In some cases, a parent and child can also apply as co-borrowers for a joint auto loan.
  • If you have a poor payment history, onboarding a co-borrower can help you get a larger loan amount.

What is a co-signed auto loan? 

Joint or co-signed auto loans: What's the difference?

  • In a co-signed auto loan, the person who needs funds is called the primary borrower. However, in some cases, they may not be able to get an individual role due to a bad credit score.
  • In order to make up for a bad credit score and get lower interest rates, the applicant can get someone with a good credit score to co-sign on the loan.
  • The co-signer allows the primary borrower to take a loan by piggybacking on the co-signers good/excellent credit score.
  • The co-signer is not directly responsible for monthly payments but will become responsible if the primary borrower defaults.
  • At the end of the loan, only the primary borrower is entitled to ownership of the vehicle – not the co-signer.
  • The co-signer is usually a family member or someone trusted by the applicant

Whose credit is used for a co-signed auto loan?

In a co-signed auto loan, the lender will consider the credit scores of both the primary borrower and the co-signer. However, the co-signer’s credit score will be given more weightage since it is used to offset the risk to the lender.

When should you consider a co-signed auto loan?

  • You should only ask someone to co-sign on an auto loan if you have a bad credit score and don’t want to take out a joint loan.
  • Co-signed auto loans help people with no payment history, bad credit, or a history of bankruptcy/repossession access to affordable auto loan rates.
  • The co-signer should always be someone you trust since they will be responsible for the monthly payment if you cannot pay.

Main differences between co-borrower and co-signer

In a joint loan, both the co-borrowers will be equally responsible for the payments and jointly own the vehicle at the end of the loan term.

However, in a co-signed loan, the co-signer will only be responsible for the monthly payments if the primary borrower is late or defaults. At the end of the loan term, only the primary borrower will own the car.

Joint or Co-signed auto loans: Which should you choose?

Can Joint and Co-signed Auto Loans Negatively Affect My Credit?

Yes, just like a personal loan, failure to properly keep up with monthly payments on a joint or co-signed loan can also negatively affect your credit score.

  • If any of the co-borrowers in a joint auto loan misses their part of the payment, it will negatively affect both their credit scores
  • Even if you co-signed on a loan, your credit score could be affected if the primary borrower makes a late payment or defaults
  • Taking on a joint loan or co-signing on a loan also increases your credit utilization, which in turn can lower your score
  • Joint or co-signed loans can also reflect a higher debt-to-income ratio and could affect the ability to qualify for future loan

Also read: How to get out of a bad car loan

Frequently Asked Questions (FAQ) 

When should you choose a joint auto loan?

It’s best to choose a joint auto loan when you want to share the responsibility of paying monthly payments. In the end, both co-borrowers will share ownership of the vehicle.

Joint or co-signed auto loans

Is it better to have both spouses on a car loan?

If you are a married couple and want to buy a car, it is better to take a joint loan with both of you as co-borrowers. That way, both spouses can pay the loan in monthly installments and take joint ownership of the car at the end of the loan term.

Whose credit score is used when co-signing?

In a co-signed loan, the co-signer’s credit score has more weightage than the primary borrower. This is because the primary borrower will usually have poor credit and will depend on the co-signer’s excellent credit to get lower rates.

Is a co-applicant the same as a co-signer?

A co-applicant for an auto loan is someone who shares responsibility for paying it back. It is not the same as a co-signer, who does not need a loan but helps another borrower get a loan using his excellent credit score.

Can I remove myself or the other person from a joint auto loan?  

Yes, you can remove yourself or anyone else from a joint auto loan by refinancing the loan. This allows you to pay off the existing loan and sign on with a new lender, while also getting lower rates in the process.

Is it better to be a co-signer or co-borrower on an auto loan?

It is better to be a co-borrower if you want to jointly own the car at the end of the loan term. You can be a co-signer if you’re helping someone (like a close friend, child, parent, or spouse) get lower interest rates with your credit score.

Can I have more than one joint loan?  

Yes, you can have more than one joint loan as long as your credit score, payment history, and other finances are solid.

 


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