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Can You Refinance an Auto Loan With a Cosigner?

Can You Refinance an Auto Loan With a Cosigner?
LeeMarie Kennedy
LeeMarie KennedyUpdated December 19, 2023
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Editor’s note: Lantern by SoFi seeks to provide content that is objective, independent and accurate. Writers are separate from our business operation and do not receive direct compensation from advertisers or partners. Read more about our Editorial Guidelines and How We Make Money.
You can refinance an auto loan with a cosigner as long as the cosigner meets the qualifications set by the lender. By “borrowing” your cosigner’s good credit, you might qualify for a better rate and terms than you would with just your own credit history. The process starts with seeing if you qualify for a loan refinance. Then, you’ll need to determine if both you and your cosigner meet potential lenders’ requirements. From there, you could be on your way to cruising into the future with a better loan.

What Exactly Is a Loan Refinance?

A loan refinance is when you take out a new loan and use it to pay off the existing loan. This can apply to auto loans, mortgages, and debt consolidation loans. Ideally, the new loan will have better rates and terms than the old one, allowing you to save money in the long run or make your monthly payment more manageable.Recommended: How Car Refinancing Works

What Is a Cosigner?

A cosigner is someone who signs the loan with a primary borrower and accepts equal responsibility for the loan. If the primary borrower is unable to repay the loan, that responsibility falls on the cosigner. The cosigner’s credit is also affected by the loan. If the borrower makes consistent, on-time payments, the cosigner’s credit would be affected in a positive way. If, however, the primary borrower fails to make the monthly payments, the cosigner’s credit would be affected in a negative way unless the cosigner took over the payments.

How Does Adding a Cosigner to an Auto Loan Help You?

If you’re working with a low credit score or a limited credit history, it can be difficult to qualify for a car loan that has reasonable rates and terms. A cosigner is someone who agrees to share responsibility for paying back the loan. If that person has good credit, you could secure a loan with rates and terms that wouldn’t otherwise be available to you. Some benefits of adding a cosigner to an auto loan include: 
  • Improved odds of approval. Even if your credit score shows that you’re considered to be a high-risk borrower, a cosigner can lower that risk by putting his or her own credit on the line to ensure the loan is repaid. 
  • A better interest rate and lower monthly payments. Since your credit score is a main factor in the interest rate you’re eligible to receive on a loan, having a cosigner with good credit can help you qualify for a lower rate and, in turn, lower the cost of your refinanced auto loan over time. 
  • The chance to build your credit. When you add a cosigner to an auto loan, you’re considered the primary borrower. That means that the loan will appear on your credit report, helping you build your credit history, as long as you make timely payments. 
Just remember that your cosigner also bears legal responsibility for the loan, so if you’re not careful about making your payments on time, you can endanger that person’s credit report and your relationship.Recommended: What Credit Score Do You Need to Refinance a Car?

What Are the Drawbacks of Having a Cosigner?

While there aren’t many cons to having a cosigner for the primary borrower, there are drawbacks to the cosigner. These include:
  • Cosigner’s credit could be negatively impacted. If the primary borrower misses a payment or fails to make multiple payments in a row, the cosigner’s credit could take a hit. 
  • Cosigner may end up having to pay off the loan. If the primary borrower can no longer afford the loan, it falls on the cosigner. To avoid default, it would be in the best interest of the cosigner to take over the loan payments.
  • It could limit cosigner’s borrowing power. When taking out a new loan, lenders look at the potential borrower’s debt-to-income ratio. By cosigning on a loan, your debt-to-income ratio would be increased and it could affect any potential new loans you may need.
  • The relationship may be damaged. If the cosigner ends up having to take over the loan, the relationship with the borrower could be damaged.

Adding a Cosigner During Refinance

If you’re thinking about refinancing an auto loan to add a cosigner, you might be wondering what a cosigner needs to do to qualify.For starters, the cosigner will typically need to have a credit score above 670, sufficient income, and a solid debt-to-income ratio. The debt-to-income ratio will determine whether or not a cosigner could afford the monthly payments on the loan if you didn’t pay. Regardless of whether the cosigner actually does plan to pay the loan for you, the lender will want to ensure that he or she would be able to make good on the loan if needed. If your cosigner is able to meet all of the lender’s requirements, he or she can sign the loan agreement along with you to help you lock in a loan with better rates and terms. That said, if you fail to make payments on the loan after driving away from the deal, both your credit and your cosigner’s credit can be negatively impacted moving forward. 

What Does a Cosigner Need To Do During the Refinance Process?

When you refinance an auto loan with a cosigner, the process is similar to the process of applying for a loan from scratch.The cosigner applies for the refinanced loan with you (the primary borrower) and the lender checks his or her credit history and financial details to make a decision about whether or not to approve the loan. Upon approval, the cosigner will sign the loan agreement and must be prepared to step in to cover payments if you default. Recommended: Car Loan Cosigner Requirements

Refinancing Your Auto Loan With Bad Credit

If you’re considering a cosigner for your auto refinancing, it may be because your credit isn’t great. Sometimes, despite your best efforts, you may end up with financial difficulties. Refinancing an auto loan, even if you have bad credit, might help you reduce your monthly loan payments and ease some of your financial burden. Here are a few steps you can take to refinance an auto loan with bad credit: 

1. Try To Build Your Credit History

If you’re considering refinancing your auto loan with a cosigner, for starters, you might think about working on your credit history. While a cosigner’s credit history may be able to help you get a loan with more favorable terms, everything you can do to build a stronger credit record yourself can help, too.Continuing to make regular payments on your current auto loan and any other debt you may have is a good start. You can also pull up a copy of your credit report to check for errors that could be affecting your score. Finally, there’s the option of working with a credit repair service if your credit score is particularly low. Just a few points can mean the difference between being approved for a refinanced auto loan and being rejected. 

2. Find a Suitable Cosigner

You’ll want to find someone who will be appealing to potential lenders. That typically means someone with a good, steady income and a good credit score. But your cosigner should also be someone you can trust and who trusts you, since your behavior can affect your cosigner’s credit history. Bear in mind that if you’re not responsible for paying back the loan, you may jeopardize your relationship with your cosigner.

3. Check With Your Current Lender

You may have the option of refinancing with the same lender. Before you shop around for other lenders to refinance your auto loan, you can check with your current lender to see what it’s willing to offer. If it’s been some time since your loan originated, you might be eligible for a new loan with better rates, especially if the prevailing rates have changed. Bear in mind, though, that not all lenders accept cosigners.

4. Shop Around for Other Lenders

If the conversation with your current lender doesn’t work out, it might be time to shop around for a different lender altogether. You and your cosigner can prepare by gathering up personal and financial information and other documentation that potential lenders are likely to use to see if you qualify for a refinanced auto loan, such as: 
  • Social Security number (for you both)
  • Current address (for you both)
  • Employment information, including company address and contact person
  • Income-related information like W2s, pay stubs, and the previous year’s tax returns (for you both)
  • Your current auto loan lender and account number
  • Your vehicle’s make, model, year, mileage, and unique VIN 
With this information already in hand, you’ll be a step ahead when it comes time for the new lender to run a credit check and take a deeper look into your financial situation.

The Takeaway

When you refinance an auto loan with a cosigner, you could be taking a step toward lower monthly expenses and a better rate on your car loan. Adding a cosigner to an auto loan can improve your odds of getting approved, help provide a better interest rate and lower monthly payments, and give you a chance to build better credit over time.Auto refinancing options from Lantern by SoFi can make refinancing your auto loan easy — with or without a cosigner. Simply fill out one simple form and receive multiple offers from top lenders in our network, all with no obligation to you.

Frequently Asked Questions

How does adding a cosigner to an auto loan help?
What is a cosigner responsible for?
Does a cosigner need to be present to refinance a car?
How do you add or remove a cosigner when refinancing a car loan?
Will refinancing affect my credit score?
Photo credit: iStock/zahar2000
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About the Author

LeeMarie Kennedy

LeeMarie Kennedy

LeeMarie Kennedy is a Boston-based copywriter and content creator with over a decade of experience writing for a variety of publishers, institutions, and corporations. She has spent the last few years focusing on writing for financial services, technology, HR and TA, and health & wellness sectors. LeeMarie has a BA in Journalism from Quinnipiac University and a MS in Organizational Communication from Northeastern University and was an original contributor to The Daily, SoFi's newsletter.
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