December 04, 2019
If you’re planning on taking out a bad credit auto loan and want to add a cosigner, what are the requirements? Cosigner requirements are fairly simple: they need to have good credit and a qualifying income. Being a cosigner means adding themselves to a car loan and agreeing to share the responsibility of making sure it gets paid. Cosigners don’t have any ownership rights to the vehicle, but they are responsible in the event you can no longer make payments.
Cosigner Requirements for Bad Credit Auto Loans
Because your credit isn’t stellar, you’re more than likely going to be working with a subprime lender. These lenders can handle various unique credit situations, including bad credit and no credit. Subprime lenders work through special finance dealerships, and have specific requirements that you and your cosigner must meet in order to get approved.
Specifics vary by lender, but your cosigner generally must meet these two requirements:
- Have good credit – Cosigners need to attach their good credit to the loan to help you get approved. In order for someone to be a cosigner, they usually must have a FICO credit score of 700 or higher. The lender checks their credit to make sure they have a qualifying credit score.
- Have a qualifying income – Your cosigner must qualify for the auto loan on their own, and this means having a certain level of minimum income and enough available income to support a car payment. Typically, subprime lenders ask that cosigners have a minimum monthly income of $1,500 to $2,000 a month before taxes from one job. They also check to see that they have a qualifying debt to income (DTI) ratio of no more than 45% to 50% of their monthly income.
How Can I Add or Remove a Cosigner?
If you’re in the middle of a bad credit auto loan, is it possible to add or remove a cosigner? It sure is! The only way you can add or remove a cosigner is by refinancing the loan.
In order to qualify to refinance a bad credit car loan, your credit score needs to have improved since taking out the original loan. This generally means at least a year needs to have passed to give you time to make a difference.
If you want to add a cosigner, make sure they meet the requirements listed above. If you want to remove a cosigner, make sure you're able to qualify for the loan on your own.
The Bottom Line
Adding a cosigner to a bad credit car loan can be a great way to boost your approval odds. Make sure you ask your potential cosigner if they’re willing to put their credit and finances on the line for you, and that you have a game plan with them in the event you can’t make payments. Always remember that your actions with the auto loan directly affect your cosigner.
If you have a cosigner on hand but don’t have a dealership to work with, we can assist. The Car Connection wants to match you to a dealer near you that knows how to help people in all kinds of unique credit situations. Thanks to our nationwide network of partner dealerships, we can save you the hassle of searching for a dealer on your own.
Don't wait any longer if you need a vehicle. Get the process started today by filling out our fast, free, and no-obligation car loan request form!
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If you’re considering buying a new car, finding a cosigner for your auto loan could make a notable difference when it comes to interest rates or even getting approved for financing in the first place. However, it also involves some risk for the cosigner. Before you ask someone else to cosign your auto loan, be sure to consider all of your options and understand how both your and your cosigner’s credit histories come into play.
When should you get a cosigner?
Finding a cosigner can be particularly advantageous if you have the income and savings to pay off an auto loan but lack enough of a credit history to get approved or secure a favorable interest rate. In this case, a family member or friend may be more willing to cosign your loan because you can show that you will be able to make your monthly payments.
Lenders will look at your credit scores and credit history to determine whether to approve you for an auto loan, as well as what terms to offer you. Having little or no credit history or low credit scores could stop you from securing financing for your new car. In that case, the lender might require a cosigner.
Even if you can get approved on your own, finding a cosigner might still benefit you. Maybe your credit history is not so bad that it precludes you from securing a car loan, but your credit scores are low enough that your interest rate and monthly payment are too high for you to maintain. Having a cosigner with good credit scores will make the interest rate and other terms more affordable.
What are the risks of cosigning?
Cosigning is a great way to help out a friend or family member, but you’ll need to understand the obligation you’re taking on and how it could affect your credit history. If the person you’re helping isn’t able to pay back their loan, the repercussions could be devastating to you.
For example, you will be held financially responsible for the debt and may have to pay it back yourself. The lender could also hold you responsible for any collection costs or late fees.
What are options outside of a cosigner?
Consumers looking for a loved one to cosign could end up damaging family relationships if they do not make payments. If your family members do not want to take on the risks of cosigning to help you get auto financing, there are alternative ways to overcome the obstacle of a limited credit history or poor credit scores.
One way is to continue to save money so you can afford a larger down payment, which might facilitate approval without a cosigner or secure you a lower interest rate on your loan. You could also simply wait to buy a car until you have built up your credit history or improved your credit scores.
If you do decide to pursue a cosigner, avoid damaging your personal relationship by keeping communication clear between the two of you and doing everything in your power to keep up with your loan payments.