How Will Getting A Cosigner Affect Your Ability To Get A Car Loan?
It is not extremely hard to get a car loan today, even if you have bad credit; however, you may experience problems getting a good loan if you have bad credit. If you really need to buy a car but do not want to pay way too much for it, you may want to consider finding a cosigner for the loan. While some auto financing lenders do not accept cosigners, many do, and this could have positive effects on the loan you receive. Before you do this, it is important to understand the effects a cosigner can have on your ability to get a good loan.
Lenders Use The Cosigner's Credit
The first important thing to know is that when you get a person to cosign for you, the lender will base the loan terms on the cosigner's credit. If you decide to get someone to cosign for you, it is important to keep this in mind. If the person that agrees to cosign for you has bad credit, it will not help you out with your loan at all.
On the other hand, if the cosigner has great credit, it could help you out tremendously. If current auto loan rates are at 5% and you qualify for a 15% loan because of your credit, you could save a lot of money if using a cosigner could drop your rate to 5%.
For example, if you take an auto loan out for $10,000 with a 15% interest rate for four years, your payments would be approximately $278 per month. With a loan that has a 5% interest rate, your payments would be only $230 per month. Over the life of this loan, you would pay approximately $2300 less if you could get the loan with the lower rate.
If you want to get a better auto loan and can find a close friend or relative that is willing to cosign, you may want to go ahead with it. Before you do this, you should consider the problems cosigning can lead to.
Cosigning Can Lead To Problems
Utilizing someone else's credit could be highly beneficial for you, but you may want to think of the effects it could have on the other person. Because the loan will end up on the cosigner's credit, he or she will be forced to make the payments if you fail. If he or she does not pay them, it could be devastating to his or her credit. If the cosigner has perfect credit and always makes payments on time, he or she will not have any choice but to make the required payments if you do not.
The lender that issued the loan would have the right to come after you and the cosigner for the debt if it is not paid. As you think about this consequence, you may want to consider if it is really worth it. Are you certain you will be able to make the payments on time each month? If not, are you willing to risk the relationship you have with this person?
If you end up defaulting, the person that cosigned will probably be upset with you, and this could lead to problems with the relationship. If you care about the person and your relationship, cosigning would not be a good option if there is any chance you may default on the loan.
Even if you cannot find a person to cosign for you, you will probably still be able to get a loan. If you are ready to make this purchase, visit a car dealership that offers auto financing, such as Leopardi Auto Sales, and apply for a loan.