How Using an Auto Loan Cosigner Impacts Your Loan

If you’re a first-time car buyer, don’t have much of a credit history, or perhaps need to start rebuilding your credit, getting an auto loan might be a little challenging. However, one way to help your auto loan approval process is to have a cosigner on your loan. Read below to see how much a cosigner can help in securing an auto loan.

How a Cosigner Works

First of all, choose your cosigner wisely. You’ll need a person with a strong credit history, steady income, and solid credit score. In short, you want this person’s financial strengths to offset your weaknesses in order to make your application more attractive. 

Essentially, the cosigner guarantees the debt of the loan. In doing so, they accept full responsibility for it. Therefore if you default on your payments, the cosigner takes responsibility for paying them.

How Much Does a Cosigner Help on Auto Loans?

Besides helping you get loan approval, having a cosigner could bring you other benefits like 

a lower APR, a larger loan amount, or both. Having a cosigner with a strong credit score (above 670) could offer you the most competitive interest rate and make your loan terms more affordable.

If you’re younger and don’t have a credit history yet, a cosigner might also help boost your financial future. You’ll be able to start building good credit early on, which will help you later when you want to take out a bigger loan—like a mortgage for example. 

On the other hand, if you’re older and are looking to rebuild your credit, a cosigner can help you get approved so you can work towards establishing a good payment history and increase your credit score. 

How a Cosigner Impacts Your Loan

If you have a low credit score or your lender thinks of you as a high-risk borrower on your own, a cosigner helps to lower the risk, which makes your loan approval more likely. In addition, lenders “reward” good credit scores with more competitive interest rates (meaning lower rates) on the loan, which could save you a lot of money over the loan term. 

Auto Loan Cosigner Requirements

Who should you ask to sign on the dotted line? It should be someone with a great credit score and a solid credit history since these are the top two requirements that lenders consider in the loan approval process. That said, other factors come into the mix when lenders make a loan decision. 

Lenders will typically take a close look at your cosigner’s proof of income and their ability to repay the debt if needed. Therefore your cosigner will want copies of their pay stubs ready for review. If your cosigner is self-employed or a business owner, they’ll want to be able to show income tax returns for the most recent two years. 

A cosigner who has stability in employment and residence is always viewed more favorably.

Auto Loan Cosigner vs. Co-Borrower

You might be wondering what’s the difference between a cosigner and a co-borrower? A  co-borrower, also known as a co-applicant, is someone who is applying jointly with you for the auto loan. If approved, each borrower is responsible for repaying the loan and has equal rights to the use and ownership of the vehicle. 

Most couples tend to be co-borrowers on auto loans because it makes the most sense to take out a loan together rather than taking out two separate loans. 

A cosigner, as discussed above, is a person who guarantees the auto loan debt. Therefore if you default on the loan, the cosigner assumes financial responsibility for it. 

Drive Away With Savings at Radiant Credit Union

Whether or not you should include a cosigner is a personal decision. Before making any final decisions, make sure you and your cosigner have set expectations about repaying your auto loan on time and in full as agreed. 

If you’re thinking of buying a used car, read below to learn more about competitive used car interest rates. At Radiant Credit Union, we’re here to help you make the best decisions based on your unique financial situation!


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