If this is your first time buying a car, or your credit score isn’t where you want it to be, or you’re having trouble getting approved for an auto loan for any other reason, you might benefit from having a cosigner on your application. A cosigner can improve your chances of getting approved and can sometimes even help you qualify for a lower interest rate.
Do you need a cosigner? Who should you ask to cosign for you? How does the process work? Here’s what you need to know:
Do you need a cosigner?
If your auto loan application was turned down, or if your lender told you you don’t qualify for a loan on your own, you may want to consider asking someone to cosign. There are many reasons people often have trouble getting approved for a loan, but some of the most common ones are:
- A low credit score and/or bad credit history
- No established credit
- Not enough income
- A high debt-to-income ratio
- Inconsistent income due to self-employment, a recent job change, or other factors
How does cosigning for a car work?
Basically, a cosigner adds their name to your auto loan application and agrees to pay your debt if you default on your loan for any reason. This reduces the risk for your lender, which is why having a cosigner can help you get approved for a lower interest rate.
If you’re having trouble getting approved for an auto loan on your own, having a strong cosigner by your side can really help your chances. So, what does a strong cosigner look like?
Who can cosign a car loan?
Asking someone to cosign your loan means asking them to take on financial risk, so the ideal cosigner is someone who knows you well and believes in you and your ability to make your loan payments on time. One of the most common scenarios is when parents cosign for their children, but your cosigner doesn’t have to be a family member.
The more financially stable your cosigner is, the better your chances of getting approved for a loan with a good interest rate. In other words, your cosigner needs to have a solid financial situation. Most lenders look for cosigners with:
- A good credit score
- Excellent credit history
- Reliable income
How much does a cosigner help on auto loans?
If your cosigner has strong credit and plenty of income, adding them to your application will definitely strengthen it. Just how much really depends on a variety of factors, including:
The best way to figure out how much of a difference your cosigner will make is to talk to your lender about your options. At Valley Credit Union, we are often able to offer better loan options (including a lower interest rate) to people who have a cosigner on their application.
Have you considered a credit union auto loan?
Credit unions are often able to offer better loan options than banks. At Valley Credit Union, we offer our members some pretty amazing benefits, and we frequently lend to first-time car buyers and people with cosigners. We also offer free rate quotes!
Call us today and experience the difference for yourself. You can also send us a message online, stop by our office, or apply online to get started.
About the Author
Justin Roberts, Vice President of Lending
Justin Roberts is our Vice President of Lending and has been in the financial industry for over 18 years. He is an Oregon State University Graduate and has just completed Western CUNA Management School. When he is not focused on helping the members at Valley, you will find him coaching his two sons and volunteering his time to help develop the youth in our communities through sports.