Pros and Cons of Having a Cosigner on an Auto Loan
Adding a cosigner for car loans can improve chances of approval for borrowers with limited credit or income. However, cosigning a loan comes with several risks.
The cosigner is legally responsible for the debt if the primary borrower can’t make payments. Any late or missed payments can negatively impact both parties’ credit scores.
Furthermore, the cosigner doesn’t have any ownership of the vehicle. Consider the pros and cons of cosigning an auto loan to ensure it’s the right move for you.
Pros and cons of cosigning a car loan
While a creditworthy cosigner can help you get approved for a car loan, it’s a big commitment for the cosigner. Consider the following pros and cons before proceeding with a cosigned loan.
Improve your chance of loan approval
Potentially qualify for lower rates and more flexible terms
Making on-time payments can help establish or rebuild your own credit
Missing a payment could damage your cosigner’s credit
The cosigner may face penalties if you fail to repay the debt
Possible strain on your relationship with the cosigner
What does cosigning a car loan mean?
Cosigning a car loan means you agree to be legally responsible for the debt if the original borrower can’t make payments. Some lenders require a cosigner if the borrower has bad credit or a high debt-to-income (DTI) ratio.
Even if a borrower can qualify independently, adding a creditworthy cosigner can often unlock more competitive interest rates and better terms.
When to consider a car loan cosigner
A lender might encourage you to find a cosigner before applying if any of the following situations apply:
Credit issues: If you have a low credit score or have experienced recent damage to your credit report, adding a cosigner with a good to excellent credit score could boost your car loan application. (Check your credit score here.) Likewise, you could consider a cosigner if you need a car loan with no credit history.
Employment history: A spotty or unreliable employment history could jeopardize your loan application. Consider finding a cosigner who meets the lender’s employment criteria, or see if you can improve your income before applying.
High DTI ratio: Borrowers with a lot of debt compared to their monthly income might not qualify for an auto loan on their own. You can calculate your DTI ratio by dividing your monthly debt payments by your overall monthly income. It’s best to keep your DTI ratio below 43%, although under 35% is ideal.
Ultimately, a cosigner can increase your chances of loan approval, since having a backup person ready to repay the debt reduces the lender’s risk. And remember, the higher your cosigner’s credit score, the more likely you’ll be to receive a low interest rate.
How to cosign a car loan
Since cosigning means sharing financial responsibility for the debt, both the primary borrower and the cosigner must complete the loan application. Here are the steps to getting a car loan when you plan to have a cosigner.
1. Check credit scores
Lenders review your and your cosigner’s credit reports to determine your level of creditworthiness. You can access your free credit report via AnnualCreditReport.com. Be sure to scrutinize these reports and submit a dispute if you notice any errors.
You can also check your credit score before submitting a loan application to know where you stand. Even if you have a good credit score, adding a cosigner with a higher score can improve your chances of approval and help you secure a lower interest rate.
2. Compare lenders
Many lenders help you make an informed decision by offering preapproval for an auto loan. While a preapproved offer is just an estimate, it allows you to compare general interest rates, terms and fees in advance, helping you find the best lender for your needs.
3. Gather important documents
Having essential paperwork ready can help you hit the road faster. While lenders will have their own requirements, here are some standard documents needed for a car loan:
- Proof of identity
- Proof of income
- Credit and financial history
- Proof of residence
- Vehicle information
- Current vehicle registration
- Proof of insurance
- Down payment
4. Apply and review
Most lenders offer a streamlined application process and aim to provide a credit decision within a few hours, although some might take up to a few days.
If you need funds fast, consider applying for instant auto loans, which are usually approved in less than an hour.
When reviewing auto loan offers, consider details such as down payment, annual percentage rate (APR), dealer costs and fees, terms, monthly payment and whether the purchase comes with tax-deductible benefits.
You can also check out our in-depth auto lender reviews to discover more about what each lender has to offer and find one that’s a good fit for you.
5. Close on your car loan
After picking your lender, you must finalize the car loan and sign any required paperwork with your cosigner. Your auto financing contract will outline the total sales price, the amount borrowed, your APR, the financing charge and your monthly payment.
Remember, your cosigner isn’t usually responsible for making regular payments — they’re just there in case you can’t repay the loan.
Make sure to read all the fine print before closing since you generally can’t return a car after signing. If you see any fees you don’t understand, ask for more clarification. You can also have your cosigner review the paperwork before finalizing your decision.
Where to find auto loans with cosigners
Many auto lenders allow cosigners, so you should have plenty of options to explore. Here are some ideas to get you started:
- Your current bank. Credit unions and traditional banks tend to offer the most competitive rates on auto loans. You might even get a discount for being an existing customer.
- An online marketplace. You can search our online marketplace for best auto loans to compare multiple lenders at once, filtering for specific features such as loan amounts or time to funding.
- In-house financing. While an in-house dealership loan offers fast approval, they tend to come with high rates, strict terms and penalties and limited selections.
Enter your details into our car affordability calculator below to see how much you could afford each month:
Alternatives to cosigning a car loan
Not everyone can find an eligible cosigner willing to risk cosigning an auto loan. Borrowers can increase the chances of loan approval on their own by following these steps:
- Find ways to boost your credit score
- Increase your income, maybe by starting a side hustle
- Focus on paying off existing debt
- Save more for your car’s down payment
You can also consider an auto loan for bad-credit borrowers. While these lenders typically have less strict eligibility criteria, you will likely pay more interest over the life of the loan.