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If you’ve picked out a car to buy and applied for a loan but had your application rejected, the lender might suggest that having an auto loan cosigner could help you get approved. You might be wondering, though, how much can a cosigner for a car loan really help? If you have little credit history or a low credit score and a qualified cosigner, the answer is a good amount — and it could also help you snag a better interest rate on your loan.Still, there are pros and cons of getting a cosigner for a car to consider, which we cover along with exactly how cosigning a car loan works.
What Is Cosigning?
Cosigning is a process where another person applies for your loan with you, typically to improve your chances of getting loan approval. This person is agreeing to also be responsible for your loan, serving as a financial guarantor. If you don’t make your payments, they’re legally obligated to do so.When you have an auto loan cosigner, the lender may access and review credit reports to see whether the cosigner can afford the monthly car payment. Having a qualified cosigner for car loans, therefore, can help you get your financing application approved.
How Does Using a Cosigner Work?
In this section, we’ll dive into the nuts and bolts of the cosigning process:
Who Can Cosign a Car Loan?
Friends, family members, and anyone else who has a relationship with you can serve as a cosigner. A successful cosigner generally needs to be someone who has a good credit score, consistent income, and debt that’s not too high relative to the income they earn. People with bad credit may also cosign car loan applications, but that might not help your application get approved.
When to Cosign an Auto Loan
If you qualify for a loan on your own, a lender can’t require you to get a cosigner. A cosigner is needed, though, if a lender won’t approve the loan based on your own credit record and income.
When Is It Best to Get a Cosigner for a Car?
A cosigner can be needed if:
You have a limited credit history
You have a low credit score
Your debt-to-income ratio (the amount of debt you have in relation to your income) is too high
Your employment history is too short or unstable
You’re otherwise considered to be a high-risk borrower
Auto Loan Cosigner Requirements
Cosigners may have to meet the following requirements to cosign a car loan application:
Proof of identity
Proof of income
May have to be at least 18 or older
A cosigner for car loans doesn’t necessarily need good credit, but a creditworthy cosigner may help you get approved for financing.Creditworthy cosigners can help subprime borrowers get auto financing by cosigning a car loan. There are ways in which you may go from being a cosigner to primary borrower if all parties are agreeable to modifying the existing loan agreement.
Can You Use a Cosigner When Refinancing an Auto Loan?
Just like when you’re buying a vehicle, cosigning a refinanced auto loan is an option. You may use a cosigner with good credit who can help you get approved for refinancing. Subprime borrowers may qualify for bad credit refinancing without a cosigner, but they may not qualify for the best rates of interest.
What Types of Lenders Allow Cosigners?
The following financial institutions may allow cosigners for car loan applications:
Banks
Credit unions
Private lenders
The way how car loans work is that lenders provide financing to help borrowers buy a new or used vehicle. Borrowers are expected to repay the car loan over a set term, and these loans may include interest charges from an annual percentage rate or APR.Some lenders may offer unsecured car loans. The difference between secured vs. unsecured auto loans is that the vehicle itself serves as collateral on the secured loan, while borrowers pledge no assets as collateral on an unsecured car loan.Recommended: Is an Auto Loan Secured or Unsecured?
What Rights Does a Cosigner Have?
You may ask, “What rights does a cosigner have on a car?” A cosigner has the right to request a cosigner release if the main borrower falls behind on payments. However, both the primary borrower and the lender would have to approve the cosigner’s removal from the loan.Even though the cosigner agrees to repay the debt if the primary borrower doesn’t, the cosigner doesn’t have any rights to the car being financed. That belongs to the main borrower, with the cosigner simply serving as a financial guarantor.
Is a Cosigner on the Title of a Car?
A person who cosigns your auto loan won’t be listed in the title of your car. A cosigner is not included in the title and has no ownership of the vehicle. A cosigner is simply an individual who shares the financial responsibility of repaying the loan alongside the primary borrower, which reduces risk to the lender.A cosigner accepts liability and agrees to make any necessary payments if the primary borrower defaults on the loan. So, is a cosigner on the title of a vehicle? No, the cosigner is not on the title of your car.
Can a Cosigner Take Your Car?
A cosigner has no right to take your car, because the cosigner has no ownership of your vehicle and no security interest in the vehicle. If you default on the car loan, your cosigner will be responsible for making required payments on the loan. If the borrower and cosigner both fail to make required payments on the loan, then the lender may take or repossess the car.A car title may list the owner and any lienholders who hold a security interest in the vehicle. The title may name your lender as a lienholder if your financing is secured by the vehicle as collateral. A cosigner is not your lienholder and has no right to take your car.
As a Cosigner When Might You Decline to Cosign?
You have no obligation to cosign a borrower’s car loan application. You can always decline the opportunity to cosign a loan, especially if you don’t want the liability. If someone asks you to cosign a car loan and you feel uncomfortable in that role, you may decline to cosign.
Pros & Cons of Cosigning an Auto Loan
As with just about any financial transaction, there are pros and cons to having a cosigner for a car, which we outline in the table below:
Pros of Cosigning an Auto Loan
Cons of Cosigning an Auto Loan
Helps you get a loan when you can’t on your own
The cosigner’s credit may be harmed
Can receive a better interest rate, which can save you money
The cosigner may face legal consequences if the loan isn’t paid
Could help build or rebuild your credit
Your relationship with the cosigner may be damaged
May be able to get a better vehicle than you could on your own
The cosigner has no ownership of the car
The Cosigning Process
In order to get a cosigner, you’ll first need to brainstorm who might make a good auto loan cosigner. This will generally be someone with good credit, a decent income, and a relatively small debt loan — and who might be willing to do this for you.Because cosigning a car loan is a big responsibility, it makes sense to prepare for when you’ll ask that person. Have information available about the vehicle, the lender, the loan terms, and so forth. Also, be ready to share how you’ll be able to make payments on time. Perhaps you’ve had credit challenges in the past that are still making it difficult for you to get a loan on your own, but you’re now following a budget and have some money saved. Share that information with the potential cosigner.If that person agrees to cosign for a car, then they would apply for the car loan with you, sharing their personal information with the lender and agreeing to have their credit scores and credit reports checked. If the loan gets approved, they’d sign the paperwork.
Cosigner vs Co-borrower
The below table compares cosigners vs. co-borrowers:
Cosigner
Co-borrower
Can help you get approved for auto loan financing
Can help you get approved for auto loan financing
Shares financial responsibility for repaying the loan
Shares financial responsibility for repaying the loan
Has no ownership of the vehicle
Shares equal ownership of the vehicle as a co-buyer
Paying off the loan: If this is possible, then you’ll not only remove the cosigner from the loan but you’ll get rid of a monthly payment. Make sure there are no fees for paying early — or, if there are, that the payoff still has enough value to move forward.
Investigating a cosigner release: Check your car note or talk to your lender to see if there is a clause in your loan papers to release a cosigner if certain conditions have been met. If there isn’t, ask the lender what they would need to release the cosigner; they may agree if they feel confident that you can make the payments on your own.
Refinancing the car loan into your name only: If you had financial or credit-related reasons for getting a cosigner and your situation has since improved, then you may be able to refinance the car into just your name. Refinancing for borrowers with a bad credit score can also sometimes be an option.
Although the third option is often the most practical, there are things to consider when refinancing a car loan.For one, it can affect your credit score (though the effects are usually small and relatively short-lived).You’ll also want to take some time when shopping for a car loan for your refinance, making sure to compare the interest rates, terms, payments, and fees offered by various lenders. Ideally, you could get an interest rate that’s better than your current one as well as a more attractive payment (with the new loan’s term playing a key role in what that new payment would be).
Alternatives to Getting a Cosigner
Below we highlight some alternatives to getting a cosigner:
Improve Your Credit Score
Building up your credit history, paying your bills on time, and improving your credit score may help you secure financing on better terms for you. There’s no guarantee that you’ll get approved for auto loan financing, but improving your credit score can help.
Buy a Less Expensive Vehicle
Buying a less expensive car may be an option to consider if you don’t qualify for tens of thousands of dollars in auto loan financing. Lenders may offer financing as low as $7,500, which can be sufficient for buying a used vehicle. Banks, credit unions, and private lenders may be willing to finance a 10-year-old car.
Save Up for a Larger Down Payment
Saving up for a larger down payment may help you qualify for car loan financing by minimizing your borrowing costs. A larger down payment may prevent you from getting an upside down auto loan in which your loan balance is greater than your car’s resale value. It’s generally better to have positive equity in your car rather than negative equity that leaves you underwater.
The Takeaway
Getting a cosigner can sometimes make the difference between a loan application getting approved or turned down, and it can often save the borrower money. Reasons why a cosigner is typically needed include when the primary borrower has credit-related issues or doesn’t have enough income.At some point, however, a borrower may decide to refinance the loan to get the cosigner’s name off of the application and, ideally, also secure a better interest rate. To get information about multiple lenders and their car refinancing programs, you can fill out one simple auto refinancing application at Lantern by SoFi.Find and compare auto loan refinance options with Lantern.
Frequently Asked Questions
What are the requirements to be a cosigner for an auto loan?
Does being a cosigner on a car loan improve your credit score?
Does a cosigner own the car that they are cosigning on?
Photo credit: iStock/fizkes
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About the Author
Kelly Boyer Sagert
Kelly Boyer Sagert is an Emmy Award-nominated writer with decades of professional writing experience. As she was getting her writing career off the ground, she spent several years working at a savings and loan institution, working in the following departments: savings, loans, IRAs, and auditing. She has published thousands of pieces online and in print.
