Need to know: Before Co-signing a Car Loan

One of the favors that might be asked of you at one point is to co-sign on a Car loan. Whether your child is asking for help getting his or her first credit card, or whether a friend needs a co-signer for a car loan, you might be asked to help out. Before you co-sign a loan, though, you need to consider the pros and cons associated with taking on this responsibility. For borrowers looking to request a co-signer, it is one way to help get approved so that you can build up your credit. 

Before signing Before you cosign for any loan, but especially one in which the borrower is credit-challenged, you should know what your liabilities could be. We are familiar with what these responsibilities are because for over a decade here at Auto Credit Express we've been helping applicants with bad credit find an auto dealer that can help them get financed. Our website is even designed so that consumers can read about issues such as repossession and tote the note dealers, as well as today's topic, cosigning poor credit car loans. The need for a co-borrower Not all applicants are able to establish car credit on their own. In many cases someone else with established good credit is needed so they can qualify for an auto loan. An additional person can be added to the finance contract typically in one of two ways: either as a co-signer, or as a co-buyer. Although the wording is different, there are similarities between the two: 1.    Both a co-signer and co-buyer are considered co-borrowers and are equally responsible for a loan. If the primary borrower is unable to meet the loan obligations, than either the co-signer or the co-buyer is required to make the loan payments. 2.    Both types of co-borrowers are signatories on the loan. This means that in addition to the primary borrower, their names appear on the loan contract and both are required to sign the loan documents. 3.    In addition to the primary borrower, both co-signers and co-buyers can be subject to collection action, up to and including wage garnishment, if the loan goes into default. 4.    During the application process, the lender will review the credit reports of both types of co-applicants and take their credit information into consideration. Co-borrower differences While the credit backgrounds of both co-applicants types are considered, lenders view their incomes differently. In fact, lenders classify the co-borrower as either a co-signer or a co-buyer depending upon how their income relates to that of the primary borrower. Co-buyer – A co-buyer's income can be added to (co-mingled with) an applicant's income in order to meet the lender's income requirements. The combined income of both is used to qualify for a loan. This means that a co-buyer is typically either the husband or wife of an applicant. Co-signer – While this person's creditworthiness is used to meet the lender's credit requirements, their income will not be added to that of the borrower's in order to meet income requirements. This means that the income of the primary borrower as well as that of the co-signer each must qualify, individually, for the lender's income requirements. Other co-borrower qualifications Typically, it's easier for someone to qualify as either type of co-applicant if they are related to the primary borrower. In most cases, wives and husbands are recognized and treated by lenders as co-buyers on a loan. Fathers, mothers, sisters, brothers, grandmothers, grandfathers as well as sons and daughters who are co-applicants are typically considered to be co-signers, since their incomes usually cannot be co-mingled with that of the primary borrower. The Bottom Line Before co-signing for an auto loan, be sure you know exactly what you're agreeing to – which includes the possibility of making the loan payments yourself if the primary borrower fails to do so. Co-signing on someone else's loan is a big commitment. Before you agree to it, you need to weigh the pros of helping someone get a loan they might need against the cons of possibly getting stuck paying for debt you didn't incur. It's a tough decision, and one that shouldn't be made lightly. Our Website Indianapolis Auto Lending  can give you all the information you need. Fill out our easy credit pre-approval Here.