How Does A Car Loan Cosigner Work

I know how it feels for your car loan application to be rejected for reasons you can’t really do much about. But what if I tell you there is a way that can help increase your chances of securing a car loan. Well, sit tight as I explain to you how a car loan cosigner works.

Consigning is very common in some loan applications like student loans, home loans or auto loans and I’m going to show you how it works.

How Car Loan Cosigner Works 

To start with, a cosigner is one who applies for a loan together with the primary borrower and promises to take full responsibility of the loan in case the primary borrower defaults. Normally, a cosigner is a close relative such as a close family member or friend with a better credit worthiness than the primary borrower.

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So a car loan cosigner is one who applies for a car loan alongside the original borrower and pledges to take responsibility of the loan in case the original borrower defaults. It sounds quite simplistic hence many rush to cosign a loan application without really understanding what the consequences can be. That is why it is important to know how it works before you agree to cosign a loan application.

Auto finance companies usually request for cosigners from borrowers with bad credit or no credit history, etc to boost their chances of getting approval. Hence when choosing someone to cosign your auto loan application, you must ensure that he or she has a good credit.

And as a cosigner, you must have it at the back of your head that you’re signatory to the loan agreement hence you will be responsible for paying back the loan if the original  borrower defaults. However, a cosigner may not be needed if the original borrower has a good credit score and credit history.

A cosigner makes it possible for persons (original borrowers) with bad credit to secure car loans at rates better than they would have got if they apply alone.

What a Car Loan Cosigner Must Know 

There are a few things a cosigner must know before agreeing to put his/her signature on that loan form. They include;

  • Loan responsibility: a cosigner is automatically responsible for paying back the loan if the original borrower defaults or is no longer able to pay back the loan. Since the cosigner is also a signatory to the loan, he/she is bound by the terms of the loan or by law to pay back else a legal action can be taken against him/ her by the lender.
  • Can affect your credit: because you are signatory to the loan, it is assumed that you are benefiting directly from the loan hence becomes part of your credit. It can either have a positive or negative impact on you credit depending on how the loan is repaid. Ensure that the original borrower makes prompt payment all the time so it doesn’t negatively affect your credit as a cosigner.
  • The last but obviously not the least thing a cosigner must know is that it is usually quite difficult to be removed as a cosigner of a loan. Hence once you agree to sign, you’re probably going to be on till the loan is settled.

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I’ll wrap up by sending a piece of advise to both the cosigner and the original borrower.

  • To the Cosigner – don’t just rush into cosigning a loan appliction without being convinced that you really want to tie yourself to a loan you will not be benefitting from directly. Be sure of the person you are signing for. He or she must be a very trusted friend or relative with a stable income, job security etc before putting your signature on the form. You must also analyse if you are capable and willing to pay back the loan in case the original borrower defaults or is unable to pay back.
  • To the original borrower: yes, owning your own car is good. However, no need to be in a haste if your credit makes it difficult for you to secure a loan by yourself. Allow your self some time to build your own credit till you’re able to borrow by yourself. Alternatively, you can look around for lenders who offer loans to persons with your kind of credit or situation.


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