What is a Loan Cosigner?
A loan cosigner is one who acts as a third person guarantor concerning a financial loan that will be repaid. They are not a personal reference, they come into the contractual agreement.
An auto loan cosigner involves somebody who will sign along with you for you to be able to get a favorable auto loan for the purchase of a vehicle. The auto loan cosigner is usually involved when the primary borrower is not able to meet some important criteria and can’t get his/her loan to be approved on their own, maybe because of a bad credit score or an unstable income.
The loan cosigner joins the legal agreement with the primary borrower and also assumes an equal liability upon the loan taken. The cosigner also takes legal liability in the case where the primary borrower fails to repay the loan and defaults. This is stated in the agreement between the lender and the borrower. Although, cosigners only have a contingent liability which means they don’t have full liability as the primary borrower does.
How Does Cosigning Work?
If you’re taking up any financial loan for the first time, you might need cosigners who will partake in your agreement in other to get the loan. This person can be anyone close to you like a spouse, a really close friend or maybe one of your siblings or family member, any of these persons can fill or fulfill that role of a cosigner on your behalf.
Cosigning involves the cosigners to guarantee that the loans been taken by you will be repaid and can make the deal a sealed and done deal by including their signatures along with their name on the dotted lines close to that of the primary borrower. They must also meet up some very important criteria that a cosigner is required to attain.
Loan Cosigner Responsibilities
Lenders require cosigners with stable incomes and decent credit scores. Being a cosigner doesn’t just simply mean the cosigner just needs to sign and go. It involves the cosigner becoming legally obligated to the terms and conditions of the loan taken. It means they are also going to be bound to repay the loan like the primary borrower.
This means the cosigner is taking up partial responsibility of paying back the loan too since he or she is the guarantor that ensured the lender that the money will be repaid upon the agreed time frame. Lenders may become more willing to draft a loan with more favorable interest rate because they are more reassured that they will get their money back.
Choosing a Loan Cosigner
It’s easy to get cosigners as some would say especially if it’s one of their family members or close friend. That is someone who is willing to lend a helping hand or who has your best interest in mind. But it doesn’t just stop there; this involves getting someone who is willing to advocate for you. You’ll need someone with a good credit score and a stable income to ensure the lender that they will definitely receive his money back even if the primary borrower is unable to pay for some reasons. It involves careful preparation before looking for cosigners.
First, you need to understand the fact that it’s a really big responsibility for someone to be cosigners. You also need to make sure you are completely informed. You want to know everything before getting an auto loan with cosigner involved. To be able to convince someone to be your cosigner you should be open about everything like your job, income and maybe problems you may face to help you and the cosigner have a clear understanding of each other. You also need to make sure you know what it involves in getting cosigners who have met all the requirements of being an auto loan cosigner.
It involves someone with;
- A good credit score
- Willingness to help you
- A steady income
- Knowledge of you and would definitely repay as the bad credit car loans cosigner.
Problems Finding a Loan Cosigner
Getting a cosigner can be really problematic when there are different factors involved. There are times where one cannot attain a cosigner for a car loan under various conditions.
- You might not be able to find cosigners because of some family issues or relationship problems.
- No one will want to be your cosigner due to unstable income and fear of losing money.
- No one may be willing to take that risks of being cosigners.
- You might not see one with a good credit score or a stable income rate.
Advantages of Having a Loan Cosigner
Both your own credit score and the cosigners will be taken into consideration as an average of both scores. Essentially the cosigner’s credit score should be a lot higher than the borrower’s to make a significant change in the loan offer. It makes getting approved for an auto loan easier and potentially more inexpensive so you can purchase a vehicle quicker.
A car loan cosigner should also have a stable job as their income will be verified. The lender asks for this because of the guarantee of the cosigner been able to repay if you should fail. The cosigner does not have to be a designated payor, meaning they do not have to make monthly payments.
Risk Involved in Being a Loan Cosigner
The cosigner does not have to have their name on the vehicle title, meaning cosigning for a loan does not mean they have ownership of the vehicle. The primary reason for cosigning, other than for marital couples supporting each other, is to use the cosigner’s credit score to get a better interest rate on the loan. Thus, the cosigner’s credit score is affected by the loan.
Your cosigner needs to know all the risks involved and how it might affect them before taking up the loan. You’ll need to make sure you understand how the loan works. From the monthly payments to the interests, and the total costs in everything about the loan.
If the primary borrower does not keep up with monthly payments, it is on the loan cosigner to help the borrower pay to keep the loan active. If the loan defaults, the vehicle purchased may be repossessed and sold at auction to recover the lender’s losses. No proceeds from the auction should be expected to be given to the borrower and cosigner. Read more about what you need to know about car loans at www.usaa.com/inet/wc/advice-auto-what-you-need-to-know-about-car-loans?akredirect=true
A credit score is used to determine loan eligibility. If the borrower gets a loan with the cosigner and makes late payments or miss payments, both credit scores will be affected due to the inability to repay the loan as per the contract. This can become a big problem since you may have spent a lot of time building up your credit score.
Lastly, because of the credit score being affected, the cosigners borrowing abilities are potentially reduced. It is the cosigner’s responsibility to pay up the loan if the borrower fails.
Check your credit score on free websites like www.transunion.com.
Is Cosigning Permanent?
It is not easy for a cosigner to get out of a contract that is already in place. It may become a problem for you to be able to get yourself out of the agreement as a car loan cosigner. The lender won’t allow you get removed unless the primary borrower can repay without the car loan cosigner.
Car Loans of America
We offer competitive auto loans nationwide and even accept those with bad credit. Apply through our online form or give us a call at (844) 243-4437.