How Much Does a Cosigner Help on Auto Loans?

A cosigner can help you secure better loan terms, and can also be the difference between getting approved for a car loan and being declined.
Written by Jessica Barrett
Reviewed by Kathleen Flear
Having a cosigner on your car loan can help you secure more favorable loan terms. Basically, a cosigner agrees that if you stop making payments on your auto loan, they will step in to pay them.
  • A cosigner is someone who backs a
    car loan
    and is held accountable if the primary borrower defaults on payments.
  • A cosigner with a good credit score can improve a borrower’s approval odds and help them secure better loan terms and interest rates.
  • A cosigner is different from a co-applicant, but their credit history can be just as badly damaged by missed payments as a co-applicant’s.

Cosigners can make a significant difference on a car loan

A cosigner can make a significant difference in the loan terms you qualify for. And depending on your income and credit history, a lender may actually require a cosigner for you to qualify for any loan at all.
Here’s an example: A dealership might advertise an interest rate of 4.5% for 72 months on a new car loan, but your credit history only qualifies you for a 9% interest rate without a cosigner.  
You’d pay more than double in interest, which can add up to thousands of extra dollars on your car loan in the long run.
If you had a cosigner, you could qualify for a much lower interest rate (so you could keep those thousands of extra dollars in your pocket).
The bottom line: A cosigner can not only help you secure better loan terms, but they can also be the difference between getting approved for a car loan and being declined.

What is a cosigner for a car loan?

Simply put, a cosigner—usually a potential car buyer’s close friend or family member—is someone who backs the loan. So if the primary borrower defaults on their loan payments, the cosigner is held accountable instead. 
Here are some other important things to know about cosigners: 
  • Many lenders require cosigners on loan applications for applicants who have a low income or poor credit history.
  • A cosigner with a
    good credit score
    can go a long way to mitigating the credit risk, and it gives you a better shot at getting a good loan with a better interest rate for your vehicle.
  • You could severely damage your cosigner’s credit score if you stop making on-time payments on your loan. This could result in your cosigner being denied for loans, credit cards, and more in the future. 
The bottom line: A cosigner should be someone with better credit and less debt than you. To ensure you don’t damage their credit score, it’s important you make regular, on-time car payments on your cosigned loan.

Cosigner vs co-applicant

It’s important to differentiate between a cosigner and a co-applicant; they definitely aren’t the same thing.
  • A co-applicant buys the car with you and has equal ownership of the vehicle purchased with the loan. Their credit profile and income are used alongside yours to determine whether you, together, can afford the vehicle.
  • A cosigner, on the other hand, has no ownership. They’re only there to provide you with a credit boost so that you can secure better terms for your loan.

How to make your car costs more affordable

When you’re purchasing a car, you want to make sure your auto loan is something you can afford. 
Even though you might qualify for a bigger loan amount with a cosigner, it’s never a good idea to take on higher monthly payments than you can comfortably cover.
In addition to having a cosigner, here are some other things you can do to make buying and owning a car more affordable:
  • Shop around for the best loan terms: Whether you’re buying a new vehicle or a used car, use a
    car loan
    comparison tool to see if you can get a lower rate from a bank or credit union rather than simply going with dealer financing.
  • Make a solid
    down payment
    : The more you pay upfront, the more you’ll save over the life of the loan.
  • Make regular payments: Missed payments and late payments lead to fees, and fees increase the cost of your loan while also harming your—and your cosigner’s—credit. 
  • Don’t sleep on refinancing: After several months, if your low credit score or your income increases, a refinance could lead to a new loan with even better terms. 
  • Keep up with basic car maintenance: Maintenance costs are an unavoidable part of car ownership—don’t add to them by neglecting maintenance that could lead to costly car repairs as well.
  • Keep your
    car insurance
    costs low: Always be on the lookout for the lowest rates on the best coverage.
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If you have poor credit and/or a low income, having a cosigner with good credit can help bolster your application and get you better loan terms. If you’re a recent grad, for example, you may have a fairly low salary and little in the way of credit history, so having a cosigner can help you meet approval requirements while also helping you build your own credit history.
There is a downside for the cosigner: By cosigning on a loan, they’re exposing themselves to a significant amount of financial risk if you, for any reason, cannot continue making your regular payments. If you default on the loan, it will impact your credit and theirs—so they’re also putting their credit score on the line.
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