When shopping for a car loan, you may have heard the terms co-borrower and co-signer before. If you are considering adding one to your car loan because you have bad credit, you should know the differences between them.
Why add a co-borrower or a co-signer to your car loan?
Adding a co-borrower or co-signer to your loan application can increase your chances of being approved by a lender. Adding either one can convince the lender that the car loan will be successful.
You can also claim a larger loan than if you had applied for it yourself, and perhaps a better one. interest rate. In fact, if you have bad credit, lenders may even require you to get a co-signer or co-borrower before considering approving you.
The co-borrower and co-signer sign the loan documents with you and are also responsible for making the monthly payments on time, even if you cannot. So what are the differences?
What does a co-borrower do?
A co-borrower, sometimes referred to as a co-applicant, is someone who signs car loan documents with you and is usually a spouse or partner. For a lender at approve a car loan with a co-borrower, the two borrowers do not necessarily need to qualify individually for approval.
If the co-borrower is your spouse, the lender adds your income and that of the co-borrower to meet the income requirements. However, your credit history and job and residence stability are usually examined individually to determine car loan approval.
When you add a co-borrower, you are both responsible for making the car loan payments on time and both parties share ownership of the vehicle. Your two names also appear on the car title.
A co-borrower represents more security for a lender because the income of both borrowers contributes to the repayment of the loan. With two people equally responsible for car payments, this generally lowers the chances that borrowers will default on the car loan.
What does a co-signer do?
As a co-borrower, a the co-signer lends you their good credit rating to help you get approved for a car loan. If you have bad credit, a co-signer reassures a lender. If you, the primary borrower, are unable to make loan payments, the co-signer acts as the back-up payer.
Often times, a co-signer is a relative, family member or close friend. When you get someone to co-sign for you, make sure they have enough income to cover your payments in case you can’t.
Co-signers can also be turned down by the lender if their debt-to-income ratio (DTI) is too high. Every lender is different, so be sure to ask what their requirements are for you and your potential co-signer.
The co-signer does not have ownership rights to the vehicle like the primary borrower. If you stop making payments, a co-signer cannot take possession of your car. However, if the co-signer doesn’t take over, you both risk facing auto loan default.
This leaves you with the repossession of the vehicle and further hurts your bad credit rating. A defect and repossession also negatively assign co-signer. However, on-time payments can increase your credit rating and that of the co-signer.
Auto loans for bad credit
If you have bad credit, a lender may ask you to find a co-signer or co-borrower before considering a car loan. Two borrowers are usually better than one, especially in the eyes of a lender. But what if you can’t find a co-signer or co-borrower? Fortunately, there are subprime auto loans.
There are lenders in some dealerships who work with bad credit borrowers called subprime lenders. Subprime lenders aren’t just about your credit score for approval – they refer to your ability, stability, and willingness to qualify for a car loan.
AT Auto Express Credit, we’ve partnered with dealerships with special financing services that work with subprime lenders. To see if there is a dealership in your area with bad credit auto loan options, complete our free form. car loan application form.