Cosigning for a Car: How It Works and More

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Here at Granite Hyundai in Somersworth, NH, our goal is to make the car-buying process as easy as possible. Whether you know which Hyundai you want to buy or have questions about a car, truck, or SUV, we will be the perfect team to assist. Today, we want to cover cosigning for a car and how this looks at a typical dealership. Stick around as we dive in, and let's get you a vehicle you can afford and that you love.

What is a Cosigner?

A cosigner, whether in a traditional loan or for a car, is someone with higher credit than you who agrees to "step in" if you, the buyer, cannot make a payment. This person has a proven track record of paying back loans, credit cards, and debts and will help someone with lower credit or no credit get approval from a dealership.

Cosigner vs. Co-Borrower

A cosigner is a person who becomes legally obligated to take over your agreed-upon monthly car payment if you cannot, while a co-borrower will be on the agreement as an equal payer. A co-borrower also has a partial legal ownership in most cases, while a cosigner does not.

The Process of Cosigning for a Car

Cosigning for a car always starts with you, the buyer, finding a lender that agrees to this scenario. Next, you will ask a cosigner with good credit (or significantly better credit history than you) if they decide to take on this potential responsibility. Once ready, you will submit a formal application for your car, get approved (depending on financials), and the payments begin every month with you as the primary. 

Benefits of Cosigning

Finding a cosigner when you want to buy a car has many benefits. First, if you have lower credit, asking someone with a positive repayment history shows the lender that somebody is always available to make an on-time payment. All a lender or in-house financier wants to know is that they will receive their money until the debt is paid off.

Improving Loan Approval Chances

By asking for a cosigner for your new car purchase, you can dramatically increase the chances of getting approved. Especially when applying for a new car as a low-credit or no-credit driver, you need to have backup for your application to be considered and taken seriously.

Tip: A cosigner with a good credit score (670 or higher) can help you qualify for a car loan.

Potential for Better Loan Terms

One of the best parts of cosigning for a car is that your loan terms will likely be better than if you applied alone with poor credit. The same goes for the cosigner, who might see a credit boost after a period of on-time payments from the buyer. The more payments made, the better the credit history for both parties.

Risks of Cosigning

Like any financial decision, cosigning for a car has its risks, too. As a cosigner, you would take on the most potential risk here, especially if the person on the loan as a primary payer fails to keep up to date with monthly payments. However, as the primary payer with the cosigner, you do not take on as much risk to your credit, especially if it is already low.

Impact on Credit Score

When someone fails to pay back a car loan, whether the primary or cosigner, this will lead to a derogatory mark on both people's credit reports. First, the person cosigning for a car might receive a bad mark if the original purchaser doesn't hold up to their agreement/monthly payment. If you do not also pay in place of the buyer failing to pay for the car, the original creditor/financier can pursue actions to collect the money or vehicle. You always want to make sure the auto payment goes through.

Financial Responsibility and Liability

As a cosigner on a vehicle, you will be legally responsible for its repayment and loan responsibility if the original borrower fails to make on-time, correct payments. This is why so many cosigners are nervous to make the move, especially when they aren't 100% sure the borrower can afford the car they are financing.

How Cosigning Affects Credit

Cosigning for a car can positively and negatively affect your credit score. Because you agree to take on debt as the primary and cosigner, this will likely cause an immediate dip in your credit score. However, with positive repayment, you will notice a rise in score over the next 3-6 months.

Tips to Cosign a Car Loan

At Granite Hyundai, we want to set you and your cosigner up for success. We have the following tips for cosigning on a car loan below to remember:

• Always check credit scores (cosigner and primary)
• Compare or shop lenders for better rates
• Gather and provide your important documents
• Work on improving your credit before a car loan
• Work with a financing team that has experience

Alternatives to Cosigning

If you cannot find a cosigner or do not want to be a cosigner on a car loan, other ways exist to improve your chances of being approved. First, building credit and using a credit repair program like the one we offer here at Granite Hyundai can make a huge difference. You will need up to six months to review your credit score and history, have a professional contact the major credit bureaus on your behalf to clean up and correct your public profile, and continue to pay down debts you currently owe.

Tip: Keep your credit utilization ratio below 30% for the best possible chance of receiving a larger car loan.

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Use Granite Hyundai's Credit Repair Program

The friendly sales and credit teams at Granite Hyundai in Somersworth, NH, are ready to discuss your car loan today, including options for cosigning for a car. Plus, we offer a credit repair program for lower or no-credit shoppers. All you have to do is come see us at the dealership, and an experienced professional will be at your service. Drive safe, and let's clean up and improve your credit history today!