Why would I need a co-signer for an auto loan? | Consumer Financial Protection Bureau (2024)

FAQs

Why would I need a co-signer for an auto loan? | Consumer Financial Protection Bureau? ›

Adding a co-signer to your auto loan reassures a lender you can repay the loan, which can increase the likelihood that they'll approve your application or provide a better interest rate.

A cosigner takes on the legal obligation to be a backup repayment source for the loan and, as such, reduces the risk for the lender and helps the borrower obtain a loan. A cosigner can also help a borrower obtain more favorable loan terms than they might otherwise have been approved for.

A co-signer is a person who agrees to take legal responsibility for someone else's debt. If the primary borrower fails to meet their financial obligations on a loan or lease, the co-signer is held accountable for any missed payments.

Auto lenders typically require a co-signer when the original borrower has bad credit or a high debt-to-income ratio. A co-signer who has a good credit history reduces the risk of lending to the primary borrower.

A cosigner on a loan or credit application takes responsibility for your debt if you are unable to pay. A cosigner agrees to cover missed payments—and potentially your entire debt—if you fail to make payments or default on your loan.

Adding a co-signer to your auto loan reassures a lender you can repay the loan, which can increase the likelihood that they'll approve your application or provide a better interest rate.

You might need to consider getting someone to cosign if you are unable to qualify for pre-approval based on: Poor credit or lack of credit history. Lack of income. The amount of money you can put down.

You can often remove a cosigner at any point during the loan period. Your loan paperwork might dictate specific terms, though. For example, some lenders require 24 months of on-time payments from the primary borrower before they'll consider releasing the cosigner.

Co-signing means you are responsible for covering payments if the main borrower cannot, but you do not have any legal rights to the car. Co-owning means both parties have equal ownership and financial responsibility for the car.

How Much Does a Co-signer Help on Auto Loans? Co-signing a car loan makes buying a car easier and more affordable for the primary borrower. According to the credit bureau Equifax, having a co-signer with good credit scores will make the interest rate and other terms more affordable.

Can a cosigner be removed from a car loan? ›

Removing a Cosigner from Your Auto Loan

If you're wondering “how to remove a cosigner from a car loan,” it is possible to do so. Contact your lender to discuss options. They will only agree if your credit history has improved to the point where you're not a risk to them.

Can a Cosigner Take Possession of the Car? If the primary borrower isn't keeping up with loan payments, can the cosigner take possession of the car? The answer is no, the cosigner has no legal right to take possession of the car. As a cosigner, you don't have legal ownership rights to the vehicle.

While having a co-signer does not guarantee you will be approved, if they have a high credit score and good credit history, lenders are far more likely to trust you as a borrower.

Lenders can consider the credit scores of both borrowers when co-signing an auto loan. If you have a lower credit score, having a co-signer with a higher score could work in your favor. In terms of which credit-scoring model is used for approvals, that can vary by lender.

To qualify as a cosigner, you'll need to provide financial documentation with the same information needed when you apply for a loan. This may include: Income verification. You may need to provide income tax returns, pay stubs, W2 forms or other documentation.

Much of the reason for having a cosigner is because the borrower doesn't have enough income, or has a debt-to-income ratio that's too high to qualify for a mortgage on their own.

A co-signer is someone who applies for a mortgage with you but who won't live in the home. A co-signer is also called a non-occupant co-borrower. The co-signer strengthens your application by adding their income, credit, and savings and promises to repay the loan.

A co-signer agreement is an agreement between parties such as in a rental lease or financial loan. The co-signer agrees to pay and be held responsible for the liabilities that the debtor or the renter incurs in case they fail to pay on time.

When you cosign on a loan, you agree to take responsibility for a debt if the primary credit applicant fails to pay it.