When Do I Need a Co-Signer for a Car Loan?

A co-signer for your car loan could help if you’re having trouble getting a loan or if the rates you’re being quoted are extremely high. This could happen if you have a low credit score, but it also could be because you have little or no credit history (e.g., you’re a new graduate), your employment record is short or you have significant other debts that raise your debt-to-income ratio.

Related: Can You Get a Car Loan With Bad Credit?

Any of these can make it harder (or impossible) to get a good loan because a lender sees you as a riskier borrower for their money. A co-signer with better credit can help you get the loan or a better rate. Requirements can vary by lender, but you generally need a person willing to be responsible for your loan who has a good credit score (670 or above, according to credit agency Experian) and enough income to pay for the loan if you don’t.

It’s a Big Ask to Be a Co-Signer

If a family member, partner or friend with better credit is willing to co-sign for the car loan, you will be riding the wave of their rating and additional income. The lender is taking less risk because if you fall behind, your co-signer is on the hook for the full amount owed and the lender or a collection agency can go after them for the money. However, that also can damage their credit rating, which you used to get the loan in the first place.

Because of these things, asking someone to co-sign is not a decision to make lightly. It might seem like a fast track to a better loan on the car you want, but it also can be a fast track to damaging a valued relationship. To avoid that, you should never use a co-signer to stretch for a vehicle you can’t comfortably afford. You should also have enough money put aside to be sure there are no late or missed payments if you have an unexpected expense. On the plus side, if you pay the loan on time, you’ll also be improving your own credit rating and might not need a co-signer next time.

A Co-Signer Is Not a Co-Borrower

Another risk your co-signer is taking is that they are responsible for paying back the car loan but have no rights to the vehicle. Unlike a co-borrower — typically spouses, partners or family members buying a car together — a co-signer does not share ownership of the vehicle and their name does not appear on the title. The vehicle is in your name only, sothe co-signer has no right to it even if you default.

Shop Around First

If you need to go this route, you and your co-signer should shop around for the best loan before you shop for a car. As with any car loan, the federal Consumer Finance Protection Bureau recommends that you shop for the loan and get preapproved before you go to a dealership so you don’t feel pressured there.

The first step is to know your credit scores before shopping. While a lender will consider other factors in a loan offer, such as employment history, the credit score is a major factor. The three major reporting agencies (Equifax, Experian and TransUnion) make their credit reports available free at a combined site. By law, everyone is entitled to one free credit report every 12 months from each of the agencies. However, Equifax, Experian and TransUnion have permanently extended a program that lets you check your credit report at each once a week for free. You can visit AnnualCreditReport.com to request copies of your credit reports; beware of other sites as they may charge you or be fraudulent sites set up to steal your personal information.

You and the co-signer also need to agree before you shop on the amount you can afford to pay per month, keeping in mind that the co-signer is agreeing to cover the full payment alone if need be. Cars.com’s Affordability Calculator can help you see what your monthly budget means for the price of a vehicle you could afford.

Then you’re ready to look for auto lenders and compare rates. Not all lenders will accept co-signed loan applications, so you will need to narrow your search with that question first. Cars.com has more detailed information on getting a car loan here.

More From Cars.com:

• What Credit Score Do You Need for a Car Loan?
• Yes, You Can Refinance a Car Loan. Should You?
• What to Know Before Taking on a 72- or 84-Month Car Loan
• How to Calculate a Car Payment
• Car Loans: How to Get the Best Interest Rate
• More Car-Financing Advice

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