3 Reasons You Might Need a Cosigner for Your Auto Loan
Whether you have a limited credit history, a low credit score, or an overall unfavorable payment history, qualifying for an auto loan can be more difficult than you may have expected. Even if you’re approved, you’ll risk steep interest rates that will increase your monthly payments and loan total.
However, bringing on a cosigner for your auto loan can help you tremendously. There are a few reasons why you might need a cosigner for your auto loan, such as sharing responsibility for paying back your loan or using their more favorable credit score to reduce your loan risk. Let’s look and see why adding a cosigner to your auto loan can improve your chances of approval.
What Is an Auto Loan Cosigner?
A cosigner applies for a loan with you, permitting the lender to use the cosigner’s credit history and other essential financial details in the approval process. Because the cosigner takes joint responsibility for the loan with you, they’re listed with you on any financing agreements and obligated to make any payments you can’t fulfill.
A cosigner must have a credit score in the "good" range, along with a favorable income. Their debt-to-income ratio is calculated to determine if they can afford monthly auto payments. The lender will also ensure that the person cosigning with you is prepared for that position.
Reasons You Might Need a Cosigner
There are a handful of reasons to add a cosigner to your auto loan. A number of benefits come with it, from higher approval chances to better interest rates.
Improved Chances of Approval
You can be seen as a high-risk borrower for numerous reasons, including poor credit, outstanding debts, low income, and other considerable factors. When you add on a cosigner, they can vouch for monthly payments and step in when you can’t meet due dates. Lenders will have better confidence in the loan being paid, therefore improving your chances of approval.
Better Interest Rates and Options
Another reason to add a cosigner is that you’ll get a better interest rate. Your credit score influences the interest rate you receive on an auto loan; if your score is low, a cosigner’s score will help you qualify for lower rates. As a result, you’ll have lower monthly payments. Plus, when you have a cosigner, your choice in vehicles expands. You’ll have an easier time finding a reliable, solid vehicle that fits your essential needs.
Opportunity To Build a Higher Credit Score
Even with a cosigner, you are the primary borrower. The loan will appear on your credit report, and making payments on time will help you build a stronger credit history. As such, it will increase your credit score.
If you’re looking for approval for an auto loan, GFA Federal Credit Union can help you find approval for car loans in Massachusetts and New Hampshire to help you get the vehicle you need. We’ll help you discover excellent rates and terms for your new or used vehicle, recreational vehicle, boat, motorcycle, or jet ski. If you have any questions about us and our services, contact us today.