Buying a vehicle is a big expense for the average person, and getting a loan is not always attainable. If you have no credit history or a very low score, you may be told that you need a co-signer to get an auto loan. If you're unfamiliar with what it means to have a co-signer, you'll definitely have these questions about it.
What Does A Co-Signer Do?
The person that agrees to be a co-signer on a loan essentially takes responsibility for you paying back the loan. If for some reason you cannot make the loan payments, the co-signer will be responsible for you and it will impact their credit if the loan is not paid. This gives the lender peace of mind that a person that qualifies for the loan is part of the loan process.
What Benefits Does A Co-Signer Provide?
While a co-signer can help with attaining a loan that would otherwise be impossible, they can also help with your auto loan in the form of a lower interest rate. That is because it is the co-signer's credit history that is considered when getting the loan, and a person with a really good credit score can help get you a lower rate as if they are getting the loan on their own.
In addition, using a co-signer also allows you to build up your own credit score and history. That improvement will make it easier to borrow money in the future because the auto loan will show that you are responsible when it comes to borrowing money.
Can Anyone Be A Co-Signer?
The nice thing about co-signers is that anyone can be them as long as they qualify for the loan. This means it is not just limited to family members, but friends and business partners can be co-signers as well. Every co-signer will have the same responsibility in the end, so it doesn't matter what your relationship with them is.
Is There A Risk To Being A Co-Signer?
The biggest risk to the co-signer is what happens if you are unable to make payments on the vehicle. The loan will also increase the co-signer's debt-to-income ratio as well. This is because the loan shows up on their credit report as if it was their own, and can impact the co-signer if they want to take out another loan and their DTI is too high. Even if a co-signer believes you will have no problem paying the loan, the increase in debt may be too much for them to take on.
To learn more about automobile loans, contact a loan and financing service in your area such as Credit Union of Denver.
Share
