Why do i need a co-signer for an auto loan?
If you are asked to bring in a co-signer for a car loan, it is probably because your credit rating is not quite up to par. Here’s how co-signers can help you and other options to explore if your credit score isn’t perfect.
Co-signers help bad credit car buyers
Having a co-signer can increase your chances of being approved for vehicle financing. They promise to pay off the loan if you can’t and help you meet a lender’s credit score requirements. Since many lenders have a credit score limit, if you don’t qualify on your own, a co-signer could be your answer.
The key to a good co-signer is to find one with at least a better credit score than yours. Preferably, a co-signer with a credit score above around 660 would give you a better chance of getting approved. The main purpose of a co-signer is to add security to the loan. Since the co-signer is responsible for the loan balance if you are unable to pay, this reduces the risk of default and therefore increases your chances of getting the vehicle.
However, co-signers can be difficult to find. They take a lot of risk in helping you get approved for a car loan because their credit score is affected by the activity on the loan. If you start to miss payments, default, or repossess the vehicle, the lender can sue the co-signer for the loan balance – and their good credit rating can be badly damaged.
You may feel stuck when applying for a car loan and being told that the only way to get approved is to have a co-signer. However, this might not be your only chance to get the vehicle you need.
Auto loans for bad credit
Another word for bad credit is subprime. For borrowers with a credit score of around 660 and below, and for those without a credit history or credit problems in general, subprime auto financing could be the answer to your problem. non-co-signer. Since subprime lenders specialize in helping borrowers with poor credit, a co-signer may not be required for subprime loan approval.
Subprime lenders are associated with special financing concessionaires. Instead of sitting across from the lender, you meet with the dealership’s special finance director. They send your information to the lender along with your documents proving that you are ready for a car loan. If one of their lending partners accepts your request, the CFO receives the payment call from the lender. This sets out the maximum car payment you are entitled to based on your current financial situation.
From there, with approval and max monthly payment on hand, you buy a vehicle on the dealer’s lot. Once you find one that matches your situation and meets the lender’s terms (such as mileage, loan amount, and age), you take delivery!
Bad credit auto loan requirements
While you might not need a co-signer to qualify for a subprime car loan, there are some basic requirements you still need to meet.
The specifics of lenders vary, most subprime lenders have these stipulations:
- Monthly income – Prove that you have a minimum monthly income of around $ 1,500 to $ 2,500 from a single source. Computer generated pay stubs do the trick if you have W-2 income. For other sources of income, two to three years of tax returns and / or bank statements may be required.
- Skin in the game – Down payments are almost always expected from borrowers with bad credit. Many subprime lenders require at least $ 1,000 down payment or 10% of the vehicle’s sale price. It can be cash, cash back, or a combination of the two.
- Functional phone – In case the lender needs to contact you regarding the status of your loan, you must prove that you have a working cell phone or landline in your name with a phone bill recent.
- Current address – Borrowers must prove that they have a stable and permanent address. Prove your residence with a recent utility bill in your name or a bank statement. The longer you’ve lived at the same address, the higher your chances of getting approved.
- Valid driver’s license – To get the car out of the parking lot, register the vehicle in your name and take out car insurance, you need a valid driver’s license. Your license cannot be suspended, revoked or expired and must show your current address.
- Personal references – Most subprime lenders require a list of five to eight references, with their full contact details such as phone number, address and email. One of the only stipulations regarding personal references is that they currently cannot share your personal address.
If you choose to go the subprime auto loan route, be aware that some lenders may require more items to qualify, or even fewer items. Bankrupt borrowers may be required to bring additional documents, such as discharge documents. Depending on your income and the loan amount you are looking for, you might also need a larger down payment.
The bottom line is that your personal circumstances largely dictate how subprime financing is likely to go for you. Since your credit score is not the most important aspect of the approval process, subprime lenders dive deep into your overall financial stability and situation to determine if you are eligible for auto financing and then work on it. go from there.
Move with us
When you don’t have a co-signer to get you out of the bad credit rut, it can be difficult to find a dealer with bad credit resources. But with over 20 years of experience connecting borrowers with dealers who can help borrowers with credit, we want to give them a hand.
Auto Express Credit is an online service with a nationwide network of dealers who are registered with subprime lenders – and we want to find one in your area. Get started now on your way to a vehicle by filling out our free auto loan application form. We will find a dealer in your area free of charge, securely and without obligation.