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If someone asks you to serve as a cosigner for their auto loan, you may have questions about the responsibilities you’d be taking on and what auto loan cosigner requirements you’d need to meet. In general, cosigners will need to have solid credit and be able to demonstrate proof of income and residency, along with other information, in order to back the primary borrower’s auto loan.There are benefits as well as drawbacks to agreeing to assume this responsibility, and the primary borrower needs to consider the pros and cons as well. Read on for more on car loan cosigner requirements.
What Is an Auto Loan Cosigner?An auto loan cosigner is someone (often a family member or good friend) who will sign loan papers to give a lender extra assurance that the person wishing to buy the car (the “primary borrower”) will make payments on time and repay the loan in full. If the borrower does not pay, then the cosigner is responsible for making payments on the auto loan.
The Role of a Car Loan CosignerA car loan cosigner can play a crucial supporting role in helping someone else get loan approval for the vehicle they want to finance. Sometimes, for example, the primary borrower hasn’t established enough credit yet or has a low credit score. In that case, a lender may require a cosigner so that someone else (with good credit) also has the responsibility of ensuring that payments are met to reduce the level of risk the financial institution is taking. Or perhaps the primary borrower could get the car loan on their own but at a less than favorable interest rate. In that situation, a cosigner could help them secure a better rate and terms. That can help the primary borrower to have a lower principal and interest payment that can be easier for them to meet each month.As payments are made on time, this can help to boost the credit score of the primary borrower as well as the cosigner. When this happens, it may improve that person’s borrowing capabilities, perhaps to the point where they can refinance the auto loan into their own name without a cosigner. For instance, a parent may act as a cosigner to help their child secure their first car loan, then later drop off the loan once the child has built up their credit.
The Cosigning ProcessWhen a cosigner is used on a loan, their qualifications are checked alongside those of the borrower (we’ll cover the cosigner car loan requirements soon). Then, once the loan is approved, both parties (the primary borrower and the cosigner) will sign the loan agreement paperwork. The primary borrower is then expected to make payments on time but, if this doesn’t happen, then the cosigner is responsible for them.
Pros and Cons of Using a Cosigner for a Car LoanFrom a borrower’s perspective, there are advantages and disadvantages of using a cosigner.
From the perspective of being the cosigner, there are also pros and cons, including:
|Pros of Using a Cosigner||Cons of Using a Cosigner|
|Having a qualified cosigner can be the difference between getting an auto loan application approved or rejected.||If you miss payments, this can damage your cosigner’s credit (as well as your own).|
|You may get a lower interest rate (and, therefore, lower payments) and better terms with a cosigner.||If you fail to repay the loan, this can also harm your personal relationship with your cosigner.|
|Pros of Being a Cosigner||Cons of Being a Cosigner|
|You can help someone else secure a car loan, thereby helping them get transportation.||You’re risking damage to your credit score if timely payments aren’t made.|
|You can often assist them in getting a better interest rate and more favorable terms.||If the primary borrower doesn’t make payments, then you’re liable to do so.|
Auto Loan Cosigner Requirements: Documents for Risk AssessmentAn auto loan cosigner should be someone who is creditworthy and has an appropriate income level, although specifics of what that means can vary by lender. One financial institution may require a higher credit score but not have as stringent of income requirements as another. To find out exactly what a particular lender’s car loan cosigner requirements are, be sure to ask. Also find out what documentation will be required from the cosigner.If you’re a primary borrower who is applying for a car loan with cosigner requirements, be aware that not everyone will make a good cosigner. Cosigners can be family members or close friends — in other words, trustworthy people who are willing to help out.
Informed AgreementAccording to the Federal Trade Commission, when you cosign a loan, the lender must provide a notice that details your obligations. This includes acknowledging that you’re being asked to guarantee repayment of the debt if the primary borrower does not. You may need to pay collection costs and other fees if this were to happen, and this information should be shared in the agreement as well.Additionally, in some states, the lender can seek to collect the amount owed from the cosigner before going to the primary borrower, using the same collection techniques employed when trying to get payment from the main borrower. This will be included in the agreement if it applies in your state.
Auto Loan Cosigner Requirements: Proof of IdentityThe lender will want to see official documentation of the cosigner’s identity and will likely ask to see one or more of the following:
- Government issued ID
- Birth certificate
Government Issued IDA lender will almost certainly want you to present a photo ID that's government issued to verify your identity. This is typically a driver’s license but can also be a state-issued ID or a U.S. military identification card. The lender may also ask for your Social Security card.
PassportIf a lender requires you to show a passport and you don’t have one, this U.S. government site provides guidance. Note that passport issuance is still being affected by the pandemic, with processing times varying depending on the time of year.
Birth CertificateIf you don’t have a copy of your birth certificate and you were born in the United States, you can contact the vital records office in your state to request one. If you need to get one quickly in order to cosign a loan, ask about expedited service options.
Auto Loan Income Requirements: Proof of IncomeIn addition to collecting identifying documents, cosigner requirements for a car loan will usually include providing proof of income. Documents that may be used include:
- Pay stubs
- Bank statements
- Wages and tax statements
Pay StubsThis is a common way for a lender to verify your current income. So, if you plan to cosign for someone, make sure to keep yours. This can be easier if they’re provided online. If needed, you could ask your employer for copies.
Bank StatementsA lender also may ask to see copies of your bank statements. This will show the money you have coming in as well as what’s going out. If your paychecks are automatically deposited, this can act as double duty (although this would demonstrate net income rather than gross).
Wages and Tax StatementsTax returns can show the bigger picture of your income. As such, lenders may ask to see a couple of years of returns to determine the steadiness of your income. If you’re self-employed, you won’t have pay stubs, so tax returns, along with other financial statements, may be required.
Car Loan Cosigner Requirements: Credit HistoryA lender’s auto loan cosigner requirements will include a look at the cosigner’s credit. A lender may or may not have a specific score that’s required, but they typically want to see one that’s very good, even excellent. This may mean a score of 670 or above. Again, consult your lender of choice for more specifics on what’s required credit-wise.
Cosigner Car Loan Requirements: Proof of ResidenceThe lender also will want proof of where you live. Acceptable examples can include the following documents, among others:
- Utility bill
- Government issued ID
- Property tax bill
Utility BillsThese are often used as proof of residency because they demonstrate that you’re paying to keep the heat and lights on at a particular address.
Government Issued IDsA lender may look at this ID and double check it against the utility bill or other proof of residence to make sure that the addresses match.
Property Tax BillsProperty tax bills can demonstrate that you’re paying taxes on a property and, when it matches the address on your government issued ID, can often be enough proof of residency for a lender.
Do I Need Any Additional Documents to Refinance My Car Loan With a Cosigner?If you decide to refinance with a cosigner to reap some of the perks of refinancing your car, you’ll need to provide the same information as you would with a purchase. You’ll also need to provide details about your vehicle (make, model, year, mileage and VIN), as well as proof of auto insurance and information about your existing loan.While you’re researching your refinancing options, also ask the lender about their car refinancing time frame to make sure it aligns with what you want or need.A primary borrower also may decide to refinance their auto loan to remove a cosigner from the loan. Perhaps the original car loan required a cosigner because the primary borrower still needed to build up or repair their credit. Or maybe the borrower didn’t earn enough income yet to support the loan. If any of these circumstances have changed, then it may be possible to refinance without a cosigner, in which case you’d need much of the same information outlined above (minus that of a cosigner).
The TakeawayPlenty of good reasons exist for a borrower to get a cosigner, although there are pros and cons, both for the primary borrower and for the cosigner. These need to be carefully weighed before moving ahead. At some point, it can make sense to refinance the car loan, either with or without a cosigner. When this happens, it may be helpful to explore auto loan refi options with Lantern by SoFi. You can fill out just one application to receive multiple offers from lenders in the network.
Photo credit: iStock/Prostock-Studio
About the Author
Kelly Boyer SagertKelly 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.