When it comes to purchasing a car, many people turn to auto loans to finance their purchase. However, not everyone is eligible for a loan, and those who are not may need to turn to a co-signer to secure financing. Co-signing an auto loan can be a great way to help someone purchase a car, but it also comes with its own set of requirements and responsibilities. In this article, we will cover everything you need to know about co-signing auto loan requirements.
The Basics of Co-Signing Auto Loans
Before we delve into the requirements for co-signing an auto loan, let’s take a quick look at what co-signing actually means. When you co-sign a loan, you are essentially taking on some of the responsibility for that loan. In the case of an auto loan, this means that if the primary borrower (the person who is actually purchasing the car) fails to make their payments, the co-signer is responsible for making those payments instead.
Co-signing an auto loan can be a great way to help someone who may not otherwise be eligible for financing to purchase a car. It can also help someone who is eligible for financing but may not be able to get the best interest rates or loan terms on their own.
The Risks of Co-Signing
While co-signing can be a great way to help someone out, it also comes with its own set of risks. The biggest risk is that if the primary borrower fails to make their payments, the co-signer is responsible for making those payments instead. This means that if the primary borrower defaults on the loan, the co-signer’s credit score may be negatively impacted. Additionally, if the co-signer is unable to make the payments, they may be sued by the lender.
Co-Signing Auto Loan Requirements
Now that we’ve covered the basics of co-signing auto loans, let’s take a look at the requirements for co-signers.
Credit Score
One of the most important requirements for co-signing an auto loan is having a good credit score. The co-signer’s credit score is one of the primary factors that lenders will look at when deciding whether to approve the loan. Typically, lenders will want co-signers to have a credit score of at least 700.
Income
In addition to a good credit score, co-signers will also need to have a steady source of income. Lenders want to ensure that the co-signer has the financial means to make the loan payments if the primary borrower is unable to do so.
Age
Co-signers also typically need to be at least 18 years old. Some lenders may have additional age requirements, such as being at least 21 years old.
Relationship to the Borrower
Finally, lenders may also want to consider the relationship between the co-signer and the primary borrower. For example, some lenders may prefer that the co-signer be a parent or grandparent of the primary borrower.
FAQs About Co-Signing Auto Loans
What happens if the primary borrower can’t make their payments?
If the primary borrower can’t make their payments, the co-signer is responsible for making those payments instead. If the co-signer is unable to make the payments, they may be sued by the lender.
Can I remove myself as a co-signer from an auto loan?
In some cases, it may be possible to remove yourself as a co-signer from an auto loan. However, this typically requires the primary borrower to refinance the loan in their own name.
Will co-signing an auto loan affect my credit score?
Yes, co-signing an auto loan can affect your credit score. If the primary borrower makes their payments on time, this can have a positive impact on your credit score. However, if the primary borrower misses payments or defaults on the loan, this can have a negative impact on your credit score.
Can I co-sign an auto loan for a friend?
Yes, it is possible to co-sign an auto loan for a friend. However, it’s important to remember that co-signing comes with its own set of risks and responsibilities, so you should carefully consider whether you are willing and able to take on those responsibilities before agreeing to co-sign.
Can I co-sign an auto loan if I have bad credit?
It is unlikely that you will be able to co-sign an auto loan if you have bad credit. Lenders typically want co-signers to have a good credit score, as this indicates that they are financially responsible and able to make loan payments if needed.
What are my legal rights as a co-signer?
As a co-signer, you have the legal right to receive copies of all loan documents and disclosures. You also have the right to receive notice if the primary borrower misses a payment or defaults on the loan.
Can I co-sign an auto loan if I have already applied for a loan of my own?
Yes, it is possible to co-sign an auto loan even if you have already applied for a loan of your own. However, it’s important to remember that co-signing comes with its own set of risks and responsibilities, so you should carefully consider whether you are willing and able to take on those responsibilities before agreeing to co-sign.
What happens if the primary borrower dies?
If the primary borrower dies, the co-signer is typically not responsible for making the remaining loan payments. However, this may depend on the specific terms of the loan agreement.
Can I be a co-signer on more than one auto loan?
Yes, it is possible to be a co-signer on more than one auto loan. However, it’s important to carefully consider whether you are willing and able to take on the additional responsibilities before agreeing to co-sign.
Does being a co-signer on an auto loan affect my ability to get a loan of my own?
Being a co-signer on an auto loan can potentially impact your ability to get a loan of your own. This is because lenders will take into consideration any existing loans or debts that you have when deciding whether to approve you for a loan.
Do I need to have a driver’s license to co-sign an auto loan?
No, you do not need to have a driver’s license to co-sign an auto loan. However, many lenders require the primary borrower to have a valid driver’s license in order to qualify for financing.
What happens if the primary borrower declares bankruptcy?
If the primary borrower declares bankruptcy, the co-signer may still be responsible for making the remaining loan payments. This can depend on the specific terms of the loan agreement and the type of bankruptcy that was filed.
What happens if the primary borrower wants to sell the car?
If the primary borrower wants to sell the car, they will typically need to pay off the remaining balance of the loan before doing so. If they are unable to do so, the co-signer may be responsible for making the remaining loan payments.
Can I co-sign an auto loan if I am not a US citizen?
It is possible to co-sign an auto loan if you are not a US citizen, but you may need to provide additional documentation and your eligibility will depend on your individual circumstances.
Conclusion
Co-signing an auto loan can be a great way to help someone purchase a car, but it’s important to carefully consider the risks and responsibilities before agreeing to co-sign. Make sure you meet all of the requirements for co-signing, including having a good credit score, a steady source of income, and a positive relationship with the primary borrower. Additionally, be sure to read and understand all of the terms and conditions of the loan before signing on as a co-signer.
Closing Disclaimer
The information provided in this article is intended for general informational purposes only and should not be relied upon as legal, financial, or professional advice. Please seek the advice of a qualified professional before making any financial decisions.