Having a co-signer can significantly improve a buyer’s chances of obtaining a loan, especially when the buyer has less-than-ideal credit. The co-signer is responsible for payments in the event the buyer defaults on the loan. In the event you choose (or are required) to have a co-signer for your car loan, there are some things you should consider before having someone else sign on that dotted line. Here are some tips for choosing a co-signer for a car loan.
Creditworthiness. Because of the co-signer’s role as your backup, they need to be in good financial standing. This includes proof of ability to pay in the event you cannot, which means proof of income and/ or assets to cover the amount of the loan.
Trustworthiness. Because you are going in on a financial agreement together, you better make sure you fully trust your co-signer. Maybe more importantly, they are going to need to trust you, since they will have to pay in the event that you don’t, and any late payments will affect their credit score, too. Communication will be key, as you’ll need to feel comfortable reaching out to this person in the unlikely event that you can’t pay your car payment.
Know the details. Understand the contract that you’re signing, and decide in advance who will pay late fees (if necessary), and any other issues that might arise. It is very difficult to remove a co-signer down the road, so make sure all parties understand their responsibilities for the life of the loan. Get an attorney involved if needed.
Learn more about car loan cosigner requirements here.
Stop by Brighton Honda today to learn more about financing your next vehicle!