Do I Need a Cosigner

Cosigners are like financial “sidekicks”, they can help you increase your chances of getting a loan approval and can even get you better interest rates. Generally, a cosigner is usually a family member or close friend and that third person is liable to pay the remaining debt in an event that you can no longer repay your loan. Here are some considerations that you might want to know.


Using a Cosigner to get Loan Approval

        Factors such as good credit score, impressive credit history and stable employment history are major components that a lender looks at in a prospective borrower. An added bonus of having a successfully managed auto loan in your most recent past will tilt the odds toward your favor.

        But this perfect track record is hard to accomplish, especially to young first-time borrowers. To add, borrowers that are new to their jobs also face the same dilemma as is with borrowers with negative credit history. If you are in this situation, looking for a cosigner is one of the best ways to remedy your problem. As previously mentioned, a cosigner does not need to be related to you. Just as long as they are willing to sign on to your loan, then you are good to go! From a lender’s perspective, having a cosigner that has a strong and stable credit history, will give them more assurance that the loan will be repaid.


Using a Cosigner to get Better Interest Rates

        Even if you think that you have a high chance of getting a loan approval, interest rates can still cost you a significant amount of money. From a lender’s standpoint, a borrower that has a low credit score poses a great risk to their investment. Oftentimes, a lender might approve your loan but with a relatively higher interest rate. Having a cosigner as a financial reinforcement can notably lower the interest rates of up to ten percentage points. Thus, securing a lower interest rate on your loan will make it more manageable for you.

        Consequently, lower interest rates means lower monthly payments. This will lighten the financial load of having a car loan and will likely result to you paying the loan successfully. It will boost your credit score and then the next time you plan on buying a new car, you won’t have to look for a cosigner anymore.


Considerations for a Cosigner

Keep in mind that when you sign as a cosigner, you bear the obligation of repaying the loan if the primary borrower is unable to do so. This is a huge step and a few reminders before cosigning might give more clarity.

  1.      You are financially obliged to repay the loan.
  2.   The amount borrowed will be considered as your own debt and thus it will also be factored into your credit score.
  3.   You will need to submit requirements such as proof of income and other evidences that show your creditworthiness.


Other Benefits of having a Cosigner

Bringing your cosigner with you as you are making a deal will provide you with more than just an approval and/or better interest. For one, your cosigner can encourage you to pick a vehicle that is right for you and your budget. Someone cosigning on your loan is likely to encourage you to go for vehicles that are well-within your financial capacity. Moreover, a cosigner will help you stay on the right track in order for you to successfully complete the repayment and increase creditworthiness.

If you cannot find a cosigner, an alternative is bringing a down payment so as to reduce the total amount that you need to borrow from a lender. The bigger the down payment, the more money you can save. Typically, a bigger down payment will likely lead to a lower interest rate and shorter loan term duration since the lender is financing a lesser amount.

If a close friend or relative wants to help you with your loan but is unable or unwilling to sign officially as your cosigner, they can help by sparing you some cash to add to your down payment. This way, they are taking a lesser risk than signing as a cosigner.


Taking calculated risks is always better. Having past credit issues or being new to the credit world will not hinder you from achieving your ownership dreams. Bringing a cosigner to the equation will not only increase your chances of approval but it may also lead to a better interest rate.