We talk a lot about how a cosigner can help you access competitive auto loans. We rarely talk about the other side of the equation, how cosigning a car loan impacts credit score or your ability to access other credit while you’re a part of someone else’s auto loan.
We tasked our Stoney Creek auto loans team to understand how cosigning a car loan impacts credit score and whether it has any other effect.
Co-signing a car loan in Stoney Creek
Co-signing a car loan is a nice thing to do for someone you trust. You can help them get a car loan they may not otherwise have been able to get and that’s not a small thing.
When you co-sign a loan, you’re guaranteeing that the loan will be repaid. If the main borrower defaults for any reason, it’s down to you to keep up payments.
It’s a legal obligation and something you need to think carefully about before you agree to. But if you do, you’re helping someone out in a big way.
How Cosigning a Car Loan Impacts Credit Score
When you’re asked to co-sign a car loan in Stoney Creek, you need to consider any future plans very carefully. While it’s impossible to peer into the future to see what might happen in several years’ time, you do need to give it careful thought.
Becoming a cosigner on a car loan will require a hard inquiry on your credit report. This will be there for other lenders to see.
The loan itself will also show up on your report as if it were yours. Even though you’re not paying it, you are legally obligated to see it paid.
That means it will show up as if it were your loan. It counts against your debt to income ratio and in your credit mix.
If you are likely to want your own car loan at some point, you’ll need to wait until the co-signed loan is paid off unless you have significant financial means.
Monitor your credit report
The one thing that isn’t always made obvious when co-signing a car loan is that you’re not officially notified if the primary borrower misses a payment until a while afterwards.
Unless the primary borrower lets you know they are in trouble so you can prepare yourself, the first time you know they missed a payment is when you receive a letter from the lender.
By then, a missed payment will likely be noted on your credit history and your credit score could be impacted.
If you do co-sign a car loan, it’s vital that you remain on good terms with the main borrower. You need them to tell you immediately if they have any difficulties whatsoever with their payments so you can take over before the missed payment is recorded by the lender.
Co-signing is a nice thing to do for someone if they need help but you need to think very carefully about doing it. There may be better alternatives that don’t require you putting your own financial health on the line. We may be able to help with that.
For those of you who know that you have a challenging credit situation, please visit Dixie Auto Loans where we have a team of credit specialists ready to help you get approved for a car loan today!
For any questions or concerns, please don’t hesitate to contact us here!
cosigning a car loan impacts your credit score