Wed, Apr 8th - 3:22AM
The Right Way of choosing a Co-Signer for your Car Loan
What is the meaning of a co-signer?
He/she is as an individual who:
• Signs the loan contract with the borrower;
• Is obligated to repay the loan if the borrower does not make payments;
• Has the joint liability for making regular payments; and
• Has no right to the vehicle.
How is a co-signer different from a co-applicant?
A co-applicant(co-borrower) assumes the same responsibility as a co-signer but he/she enjoys the benefit of ownership. A co-applicanthas right to the car.
Who needs a co-signer?
Car buyers who do not have a strong credit application require a co-signer because he/she ensures the lender of regular payments and reduces the lender’s risk. So, a co-signer is often considered a boon by following people because he/she helps them in securing quick finance:
• Young car buyers with no credit history
• People with terrible credit score
• People with low income
• Car buyers with short employment history
• Car buyers with repossession or bankruptcy in the past
Is a co-signer needed for a “joint car loan”?
A car loan is considered a “joint car loan” if the following applicants are involved:
1. A primary borrower
2. A co-applicant or aco-borrower
If both the applicants have credit issues or any other financial problem, lenders make co-signing compulsory.
Who is eligible to become a co-signer?
Usually, parents co-sign car loans for their children. It is for this reason many people believe that the only criterion for becoming a co-signer is to be the relative of the borrower. But, it is a myth. Following are the criteria for becoming a co-signer:
• Preparedness to Co-Sign
Many people will be ready to inform the lenders about their willingness to become your co-signer. But, just an informal promise or a verbal agreement is not enough to become a co-signer. So, ensure that your co-signer is prepared to sign the loan contract and is willing to assume the responsibility of your car loan.
• Good Credit Score
A co-signer is required to have a good credit score. He/she must pay bills on time and have an experience of obtaining a variety of debts such as mortgage loans, credit card debts, personal loans, etc.
Usually, lenders require a co-signer to have a credit history of at least five years. So, make sure that you check the prospective co-signer’s credit history before talking to the lender.
• Ability to Repay the Loan
Lenders don’t allow anyone to become a co-signer. A person can co-sign your loan contract if he/shecan repay the loan. Your co-signer needs to submit the financial documents to the lenders so that they can check his/her financial situation:
1. Bank statements
2. Property details
3. Ongoing loan information
5. IT returns (if the co-signer is self-employed)
• Employment and Residential Stability
If your co-signer switches jobs frequently, lenders will consider his/her employment status unstable and reject your loan application. It is because lenders want a co-signer to have a stable employment.
Also, lenders require a co-signer to have a stable residence history. It is ideal if your prospective co-signer is residing at the same address for at least two years.
So, these are the criteria for becoming a co-signer. If your lender has asked to bring a co-signer, don’t forget to use them. It will help you in choosing the right co-signer for your car loan.
Don’t worry if you cannot find a co-signer. Car Destination provides special first-time car buyer program to help young auto buyers. To apply with the company, simply submit your auto loan request and the company will provide you with low rate car financing program.