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How Does a Cosigner Work for a Car? Pros, Cons & FAQs

man signing documents of car loan

If your friend or family member has asked you to be their cosigner, you probably found yourself doing excessive research on the topic, trying to understand what that actually means. A cosigner is a person that accepts full responsibility for paying back a loan in case the primary borrower fails to do so. Being a cosigner is similar to applying for your own loan—the cosigner needs to be able to pay off the costs of the loan each month until the entire debt is paid off. Before signing anything, it is crucial to know what it means to be a co-signer. You might feel good at first, helping out a family member, a relative, or a close friend, but there are some vital points to be aware of.

Make sure to read the article below to find out how exactly being a cosigner works.

car and road divider

How Does It Work?

When it comes to buying a large investment, such as a vehicle, most people choose to go through this process with a considerable loan. In this case, most leasing companies will require the borrower to have a cosigner, especially if their credit and income don’t meet the lender’s requirements. This entire process would begin with applying for a loan, which a borrower and a cosigner would do by looking for adequate lenders. After finding a lender that accepts applications with a cosigner, both the borrower and the cosigner must get pre-qualified.

You’ll both need to submit the documents needed, such as your IDs, proof of income, and credit check. After this long process is done, you will need to follow your payment due date carefully, as any delays can significantly affect your credit.

car dealer provides advice on loans and insurance
Image Credit: Orathai Mayoeh, Shutterstock

Things To Consider Before Cosigning a Car

If you happen to be in the role of a cosigner, you need to know the effect cosigning will have on your credit score and other tolls on your financial future. Imagine the worst possible scenario—the borrower or the person you cosigned a loan for is unable to continue repaying their debts and leaves all the payments over to you. Depending on the size of the loan, you may need to think about your capabilities and whether you’d be able to repay the debt on your own.

Being a cosigner will become a long-term commitment that may interrupt your other plans. You will need to devote your time and patience until the borrower manages to repay the entire debt. For this long-term relationship to work, you must be close to the person you’d be helping. Make sure your connection is strong enough to handle any pressures that might come along the way.

Another thing you need to consider is whether you are ready to check in on a loan each month. Being late or missing your payment entirely can affect your credit, so you need to trust this person to be a co-signer.

When Should You Have a Cosigner for a Car?

While a cosigner can help you get the loan you need for a car, it is only sometimes a good idea. Ensure the car is within your budget because the loan amount will depend on your monthly income. If your budget is not enough to cover the car, even with the lowest interest rate, consider going for a used car closer to your budget.

Having a cosigner is excellent when you have mutual trust and respect with the person, which is why a family member would be the best first choice.

Advantages of Cosigning a Car

There are many advantages to cosigning a car. One of the major benefits is the incredible feeling you will have after helping out a family member or a friend. You can also continue working on a perfect credit score and maintain your flawless history if the primary borrower pays off the loan responsibly.

customers signing some important documents at new car showroom
Image Credit: wavebreakmedia, Shutterstock

Disadvantages of Cosigning a Car

Cosigning for a car is similar to being a primary borrower and will limit you in your financial future.

While cosigning can improve your credit score, it can also affect it negatively. If the borrower is negligent and keeps being late for payments, it will reflect on your credit score as if it were your own.

Frequently Asked Questions (FAQs)

What’s the Difference Between a Co-owner and Co-signer?

The main difference between a cosigner and a co-owner is the legal ownership of the vehicle. The vehicle will always belong to the co-owner without the cosigner having any part in it. Nevertheless, the cosigner is obliged to pay off the debt as if it were theirs.

What Are Cosigner Requirements?

Before being able to apply as a cosigner, there are some basic requirements you will need to follow carefully. You’ll need to have an excellent credit history and proof of funding that you can carry out this debt entirely on your own.

What Rights Does a Cosigner Have?

Becoming a cosigner is not a task that should be taken lightly. Doing such a thing for someone requires serious thought because it can affect your entire future and credit score. The cosigner takes up all the responsibilities and rights of the borrower if the borrower fails to pay off their debt.

car and road divider


Once you learn about what exactly cosigning means, you can carefully rethink your options and possibilities. Each decision has its own benefits and drawbacks; you just have to put everything on paper and decide whether it is worth it. This process might be long and tedious, but helping out a person your trust unconditionally can be the most rewarding feeling ever.

Featured Image Credit: gpointstudio, Shutterstock


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