A co-borrower may boost your chances of approval* and, if approved, they could possibly better your loan terms. And what a difference having your own transportation can make, whether it’s getting to college classes to further your education, getting to work on time and stress free, picking up the kids from school or taking a relaxing road trip wherever you choose.
Do I need a co-borrower or a cosigner on a car loan?
Auto loan cosigner – A cosigner is someone who guarantees to meet any missed payments and even repay the full loan amount should you fail to do so, which provides a safety net for both you and a potential lender.
Co-borrower – Adding a co-borrower (also known as a co-applicant) to your application means you’re applying for a joint auto loan. If approved, each borrower is responsible for repaying the loan and has the same rights to the use and ownership of the vehicle.
Not all lenders allow cosigners on their loans. You should check with a potential lender to see if you’ll need a cosigner or a co-applicant. Also, make sure you pick the correct cosigner though, since someone with poor credit could also negatively impact your application as well.
How much does a cosigner or co-borrower help on auto loans?
Improving your chances of approval is a big advantage in itself but, if approved with a co-applicant, you may also benefit from a lower interest rate, larger loan amount or both, depending on other factors such as how good each applicant’s credit is. Co-applicants potentially have a greater effect on maximizing a loan amount as their combined incomes can demonstrate more ability to repay the loan.
A co-applicant might also be a big plus for your financial future. With such help, many consumers with no credit histories can get a leg up on the credit ladder, while those with poor credit can rebuild their scores. That means next time, you may be able to qualify for a loan on your own.
Co-borrower rights
With equal obligations to the finance contract and rights to the vehicle, the situation is simpler for a joint loan than a cosigned loan. However, if later selling the vehicle, the co-borrowers must each agree to the sale since both names are on the title and both signatures are required for the paperwork.
Cosigner rights
Can a cosigner take the car? – While the cosigner is contractually committed to the loan, they have no rights to the vehicle. Even if they find themselves having to take over payments, they cannot take possession of the car.
Cases where the borrower defaults – The cosigner should be aware that if the borrower defaults on the loan, the lender can use the same collection methods against the cosigner as they would for the borrower, including asking for the full loan amount, garnishing wages and legal action. The lender can also approach the cosigner to collect a default payment before they approach the borrower. Failure to keep on top of the loan can damage the credit of the cosigner, as well as that of the borrower, and may affect their ability to get loans themselves.
In the event of a bankruptcy – If the borrower goes through bankruptcy and loses their car, the cosigner may still have to pay any outstanding debt after the sale of the vehicle.
Pre-qualify with Drive®
If your credit history is limited or has bumps and bruises, keep in mind that Drive serves as a full-spectrum lender and could help you out with a new loan. Pre-qualifying takes about two minutes and it doesn’t impact your credit score. Now that you know more about co-borrowers and cosigners, you might be able to find your road forward with a new vehicle loan from Drive.
*Pre-qualification subject to approval. Final credit terms are subject to change based on submittal of a credit application at a participating dealer, which may impact your credit.
