Adding a Cosigner to Your Auto Loan

Many bad credit borrowers ask someone to cosign their car loan. We explore what a cosigner does to help increase your chances of approval, and how it works.

Adding a Cosigner to Your Auto Loan

Having a cosigner is a great way to increase your chances of auto loan approval if your credit score is less than perfect. A cosigner lends you their good credit score and can often help you qualify for better loan terms if you are approved.

A cosigner can really be anyone, as long as they have a good credit score and they meet the lender’s income requirements. Typically, borrowers ask friends or family members to cosign a car loan. If you ask a spouse to cosign for you, they become a co-borrower, instead.

A cosigner simply helps the primary borrower get approved for a loan by offering additional security to the lender by promising to make the payments if the primary borrower cannot. They sign the loan contract with you, but do not get any rights to the vehicle.

While they agree to pay the loan in the event that you’re unable to, they aren’t there to help you make payments each month. You still need to meet the lender’s income requirements, and you cannot add a cosigner’s income to yours to meet the lender’s standards.

Risks for the Cosigner

Before you ask someone to sign an auto loan contract with you, let them know the risks involved. The biggest risk that comes with being a cosigner is the possible negative impact on their good credit score.

If you start to miss payments, it not only harms your credit score but also the cosigner’s. Additionally, the lender can go after the cosigner for payments if you start slipping. If you default, it can remain on your and your cosigner’s credit reports for up to seven years. A default, and the repossession that usually follows, can really hurt your chances of getting approved for new credit in the future, and can drastically lower both of your credit scores.

While missed payments can hurt both your scores, on-time payments can improve them. Since your cosigner risked their good credit to help you get approved for the loan, be sure to stay in contact with them throughout the loan and assure them that their credit is in good hands!

A cosigner also can not back out of a car loan once the contract is signed. If your credit score has improved since the start of the loan and you want to remove them, you can refinance the auto loan to remove them from the loan. Refinancing is the only way to remove a cosigner.

Finding a Dealership to Work With

Whether or not you find a cosigner, getting a car loan with bad credit can be difficult. Many traditional auto lenders may take one look at your credit score and turn you away – thankfully, there are bad credit car lenders that can help.

Subprime lenders use more than a borrower’s credit score to make their loan decision and know that people are more than what appears on their credit reports. If you’re struggling to find a lender that’s willing to work within your unique credit situation, start with us at AdvantageAutoLoans.com.

We match borrowers to dealerships with special finance departments with bad credit auto loan options. With a subprime lender, you may be able to get approved for a car loan without a cosigner if you meet their requirements. To get started, simply complete our free online application  and we’ll look for a dealer in your area that works with subprime lenders.

Will a Dealership Finance Me With Bad Credit?

If you cannot get approved through standard financing, you may be able to finance through a dealership that works with subprime lenders – if you can meet their conditions. Things can get tricky, however, because the requirements of these lenders are different than traditional lenders. Here is what you need to know.

How Dealership Special Finance Departments Work

Some dealerships have special finance departments that work with subprime, or bad credit, lenders. Subprime lenders use more than a credit score to determine your eligibility for a loan.

Bad credit lenders evaluate your income, job and residence stability, past payment history, and much more to determine if you qualify and how much car you can afford, based on your credit score, credit history, and the information you provide them.

If approved, they send the dealer a payment call, which is the maximum monthly loan payment you are approved for. From there, you choose a vehicle from the dealership’s inventory that fits within that budget.

Once you have chosen a car, you finalize the rest of the paperwork with the dealer. You can then purchase additional services or coverage, such as GAP insurance or extended warranties, if you want.

To be considered for subprime financing, there are also some documents you need to put together.

Requirements for a Bad Credit Auto Loan

With a bad credit lender, you must meet their requirements before you’re considered for auto loan approval. Some common documents you must provide include:

  • Driver’s license – Must be valid (not revoked, suspended, or expired) with your current address.
  • Proof of income – Subprime lenders typically require a monthly minimum income of anywhere from $1,500 to $2,000, pre-tax. This income must be proven with computer-generated check stubs that show year-to-date income.
  • Proof of residence – This can be proven with a recent utility bill, in your name, with your current address.
  • Proof of a working phone – A working cell or landline phone in your name, proven with a recent phone bill. Prepaid phones usually aren’t accepted.
  • Down payment Bad credit auto loans require a down payment, typically of at least 10% of the vehicle’s selling price, or $1,000, whichever is less. Equity from a trade-in can contribute to this down payment requirement as well.
  • Personal references – Lenders typically require a list of between five to eight personal references of family members, friends, or coworkers, with their complete contact information. None of these references can be someone living at the same address as you.

Since all subprime lenders are different, the listed requirements are general guidelines of what to expect in terms of income and the number of personal references. It’s also possible for some lenders to require more or fewer qualifications.

Additional items may be required based on your own situation. For example, if you were recently discharged from a bankruptcy, you need to bring your discharge papers and, possibly, other paperwork.

The hardest for many bad credit borrowers to meet is the down payment requirement – but it is really in your best interest to put down as much as you can reasonably afford. The more money you put down, the less you spend on interest charges during the loan term, and the smaller your monthly loan payment. If you have a trade-in with equity, it can add to your down payment, and possibly cover all of it.

Where Do I Find Subprime Lenders?

Subprime lending is more readily available than ever. But if you want to take the hassle out of finding a dealership that offers special financing, we want to help with that. At AdvantageAutoLoans.com, we’ve teamed up with dealers all over the country that have subprime lending options.

You simply fill out our secure auto loan request form, and we get to work finding a dealership in your local area. The form is completely free (yes, free!), and takes only a few minutes to complete. To get started, click here!

Leasing a Car vs. a Rent to Own Car

When someone says renting, you may think of a lease agreement. No wonder there’s confusion when it comes to the differences between car leasing and rent to own vehicles! They sound very similar – like they go hand in hand. We’re here to outline their differences.

Leasing a Car vs. a Rent to Own Car

While renting and leasing are often used interchangeably or alongside one another, these terms have very different meanings when it comes to auto financing.

One of the main differences between a lease and a rent to own car is the dealership where it’s offered. Leases are almost exclusively for new vehicles and available at traditional, franchised dealers. Rent to own cars are offered at dealerships with in-house financing, where the dealer is also the lender. Rent to own vehicles, also called lease to owns, are used cars.

How Leasing a Car Works

Traditional leasing is only available at franchised dealerships and is almost exclusively reserved for new vehicles. Typically, a lease’s monthly payments are more affordable than financing a new car with an auto loan, and leasing can be great for someone that wants to drive a brand-new vehicle every few years.

With a car lease, you pay the difference between the negotiated selling price and the value of the vehicle at the end of your lease term (also known as residual value). In other words, you’re paying only for that portion of the car you use while you’re driving it.

Once your lease is up, you return the vehicle to the dealer or leasing company. You don’t have any ownership rights to it since your name isn’t listed on the title. However, there’s usually the option to purchase the car at the end of the lease, while many leasing companies waive the termination fee if you turn it in for another leased vehicle. But you aren’t obligated to do either – you can simply pay any fees, turn it in, and walk away if you want. However, with a lease, you typically don’t gain any equity to put toward future purchases.

Keep in mind that new car leasing is generally only for borrowers with good to great credit scores. If your credit score is less than perfect, you may have issues getting approved for a new vehicle lease.

How Rent to Own Cars Work

With rent to own cars, you typically purchase the vehicle at the end of the rental agreement. The goal is to complete your rent payments so you can own the car. Similar to a traditional auto lease, your name isn’t listed on the title for the rent to own vehicle, unless you purchase it at the end of the rental period.

Only adding to the confusion, rent to own is sometimes called a lease to own. However, if you hear “to own” at the end, it’s likely for a used car at an in-house financing or buy here pay here (BHPH) dealership.

Rent to own agreements are often offered at BHPH dealers that only have used vehicles. These dealerships generally don’t check a borrower’s credit score during the approval process, which makes these kinds of dealers very appealing to borrowers struggling to get financed by a traditional lender.

While BHPH dealerships don’t normally check credit scores, they also may not report your rental agreement to the credit reporting agencies, either. Even if you make every payment on time, your credit score may not improve. If you decide to look for a rent to own car, be sure to ask the dealer if they report rentals and payments to the major credit bureaus if you want to help your credit score.

Some BHPH dealerships may also allow the renter to back out of the rent to own agreement, unlike a traditional lease. But this means you forfeit your down payment, all rent payments, and gain nothing at the end of the rent to own contract.

Additionally, with a rent to own vehicle, you may be expected to make weekly or biweekly payments at the dealership. Renting also may be more expensive than simply financing a car, and it’s often a last resort option for bad credit borrowers who need a vehicle right away.

Financing a Car With Bad Credit

Car leasing is typically for those with good credit scores, while a rent to own car may not improve your credit score and is typically more expensive than financing one. If you want a reliable used vehicle and a way to help your poor credit score, financing through a lender that offers bad credit auto loans could be for you.

Bad credit lenders, also called subprime lenders, work through a dealership’s special finance department to help bad credit borrowers get financed for their next car. These lenders report auto loans to the credit bureaus, so you can improve your credit score for future car loans or leasing opportunities with on-time payments.

At AdvantageAutoLoans.com, we have connections with dealers that have special finance departments. We match borrowers with all types of unique credit situations to these dealerships for free. To get started, simply complete our auto loan request form and we’ll look for a dealer in your local area.