Many people have a hard time qualifying for a car loan on their own. Fortunately, you may be able to get a loan if you can find someone to cosign with you. However, applying for a loan with a cosigner can be complicated.
Understand the Risk to Your Relationship
People with bad credit and or a lot of debt usually have a difficult time convincing lenders to give them a loan. You will need to find a friend or family member who trusts you to pay it back.
You should be grateful if somebody is willing to cosign a loan for you. Make sure that you don't abuse their trust. They will be on the hook for any payments that you can't make and their own credit will suffer if you don't pay on time.
Keep Communication Open
You and your cosigner need to communicate with each other as clearly as possible. They need to know if you missed a payment or fear you may have difficulty keeping up with the loan. Your cosigner also needs to know the terms of the loan beforehand. You may want to use an auto finance calculator before applying.
They need to put their address down on the loan application, but they may not always be notified if you miss a payment. Make sure that the lender knows to update them about any new developments and communicate with them as openly as possible.
Make Sure Your Cosigners Finances Are in Order
The reason you need a cosigner is because you don't meet the lender's income, credit or debt-income requirements. A cosigner should make lenders feel more comfortable giving you a loan.
Some cosigners may not have their own finances in order so they may not help make your case. You will need to find someone with a good income, little debt and good credit to cosign your loan for you.
Most lenders want to lend to people who have a debt-income ratio less than 28% and a credit score of at least 570. They may be willing to lower their requirements for your cosigner since they know you will be sharing the obligation with you. However, that isn't something that you should count on. You will want to make sure that your cosigner looks as impressive as possible. Both of you should take a look at the best car websites in the region where you’re looking to buy and make sure you agree on pricing and other details first.
Keep the Title in Your Name
The vehicle title is sent to the bank when you take out a loan. The lender will typically put both your names on the title unless you specify otherwise. You will want to try to get the title entirely in your name if possible.
You want to make sure that the cosigner's name is only on the loan applicant. The Title should still be in your name. At the very least, you will want to make sure that your name is first. This will establish that you are the owner of the vehicle. Otherwise, you wouldn't be allowed to sell the vehicle without their permission. They could also hold the car over your head if you ever had problems in your relationship.
Don't Be Too Reliant on Your Cosigner
A cosigner can improve the chances that you will get a loan. However, you may still have trouble getting a loan if you have poor credit, a lot of debt or a low income. You could also be stuck paying much higher interest rates even if your cosigner has stellar credit and a good income.
You will want to focus on improving your credit and reducing your debt long before you take out a car loan. You will be much more likely to get a good loan if you don't rely exclusively on your cosigner.