There are many reasons you may have to ask someone to cosign your auto loan. You might have bad credit and can’t afford a high interest rate. Maybe you have no credit, and need someone to help get you started. Other reasons include low income, a short employment history or a prior repossession. No matter the why, it’s important to choose the right cosigner—and a few tips can help you make the best choice.
What is a Cosigner
A cosigner is someone who offers you their good credit standing to help you secure a loan, often with a better interest rate. Cosigners take on a major liability in cosigning with you—if you default, they must cover the payments or suffer negative consequences. Late payments also affect a cosigner. In essence, any choices you make regarding the loan will affect your cosigner’s credit—good payment practices will have a positive impact on both you and the cosigner, while poor practices will impact both of you negatively. Since a cosigner’s good name is at stake, if you aren’t living up to your end of the bargain, they may ask you to surrender the vehicle to them in trade for bringing payments up-to-date, and it can have a long-lasting damaging effect on personal relationships. Before you enter a cosigner relationship with a friend or family member, make sure you are ready and willing to do your part. Look at it this way—a cosigner is giving you the gift of being able to get a car, without the benefit of using it themselves. They are trusting you to make sound financial decisions, and if you don’t, they’ll pay the price.
Cosigner Qualifications
Cosigners will need to provide the same information you do when applying for the loan. They’ll need to bring:
- Pay stubs/proof of income
- Proof of address
- A good credit score
- References
- Identification
A cosigner with a stable job and residence will work best. Lenders want the assurance that someone is responsible and able to make payments on time if you can’t. Choose someone you know doesn’t change jobs and homes on a regular basis, and is known for financial responsibility and paying off debts in a timely fashion.
Approaching a Potential Cosigner
If you’ve decided to go the cosigner route, it’s important to show them that you’re taking the responsibility of an auto loan seriously. First, make sure you absolutely aren’t able to get a loan solo—exhaust all avenues before asking someone to hop on board with you.
If you have to get assistance to secure a loan, do your research and show the potential cosigner that the vehicle, loan, dealership and budget are all safe bets. Prove that you’re willing to stay within your price range, and find a reliable, problem-free car. You’ll also need to show that you’re worth the risk. Some things to gather and present include:
- Pay stubs, bank statements or proof of employment
- Length of time at your job (if you don’t have a job, show how you expect to make payments)
- A credit report if you have one, and any documentation that you’ve paid off past debts, or that you’re trying to improve your financial situation
- A thorough budget that includes car payments, gas, insurance and all the costs involved with owning a car
- A backup plan—how you’ll make money and pay back the loan if your employment situation changes
- A contract to hold yourself accountable in case you default
A person takes a major risk to their credit reputation when they cosign with someone. It’s essential that you understand and respect the responsibility they’re taking on. A cosigner may be the only option available to you to get into a car, but it’s important to make sure that it’s a promise you’re able to fulfill. If you’re not able to pay a loan back, don’t get one. If you’re ready, and have prepared thoroughly, contact a cosigner to get into your new ride.
