Your Credit Score & Using a Co-signer For an Auto Loan
The credit score plays a significant role in accessing vehicle financing. To obtain an auto loan even with a Bad Credit, you may require a co-borrower or co-signer.
Interesting, while a co-borrower and a co-signer are not the same, each may increase your chances of getting loans approved and also secure better loan terms for you.
To use co-borrower/co-signer or not?
According to the Consumer Financial Protection Bureau, using a co-signer while applying for a car loan presents a safe alternative for both the lender and the borrower. It gives assurance that the loan will be repaid even when you default.
Many circumstances require the use of another person’s (co-signer) signature;
- Zero Credit History
For a young first-time car buyer or a student, having a credit history might not be possible because you don’t have work yet, and thus with no experience in taking credit. In such a situation, getting a total rejection is often inevitable. However, with the use of a co-signer or a co-borrower, the lender will have consideration for your loan approval.
- Bad Credit Report
Another instance is when you have garnered poor credit score over time. The result is usually the same as having no credit history; you stand a chance of being declined an approval as well. Teaming up with a co-signer or co-borrower will present you a better chance of being considered.
Requirements for a loan co-signer or co-borrower
While planning to leverage on a co-borrower or co-signer, you may be faced with choosing the perfect person to act as your co-signer. The CFPB suggests that a co-signer is mostly a family member like the parent, siblings or spouse. It some occasions, close friends can also act as a cosigner.
Regardless of your choice of a cosigner, they must meet specific requirements, and the most significant one being that they must have good credit report otherwise know as creditworthiness.
Having a co-signer with an excellent credit score
As reported by a credit bureau, a cosigner with an excellent credit score will enable you to access loan. This can even lower your interest rate!
Standing as a cosigner for someone present risks as the cosigner will be held responsible should a borrower default. They may be required to meet any missed payments. They may even be mandated to repay the full loan if a borrower fails to pay.
Also, both the borrower and cosigner credit score may be critically affected if a borrower fails to repay their loan on time or when there is a late payment. Incurring a bad credit report as a co-signer will ruin their chance if securing a loan in the future.
Having your means of transportation can make a huge difference in your life; whether it’s attending classes in pursuit of further education, getting to work early without hassle, picking up your kids from school or enjoying a road trip.
You must consider taking advantage of a co-signer when applying for a loan of your credit score is nothing to write about. For couples, in need of an auto loan, a joint loan can be the best option.