Been googling financial terms recently? You may have come across the term “co-signing” and are probably wondering what it means. Co-signing is indeed a useful financial tool that could be beneficial to you, which is why in this article we’re going to go over what does it mean to co-sign a car loan and why it can be a great idea.
What Is Co-signing?
Let’s start with the very basics; what does it mean to co-sign a car loan? Well it’s somewhat explained by the name, co-signing a loan is when you sign a loan agreement alongside someone else.
What that means is that if the first name on the agreement fails to meet the repayment requirements of the loan then the loan’s debt will pass to the second person on the loan agreement.
When Should you Co-sign?
So why would you want to do this, other than some secret plot to destroy someone’s life by dumping a pile of debt on them. Well it’s because banks and lenders like co-signers because they mitigate risk, and that means they’ll offer better rates to a car loan with a co-signer.
It also opens up loans that you may otherwise be ineligible for. The most common application of a co-signer is teenagers or other beginner drivers who don’t have the drivers history or financial history necessary to qualify for a loan. With a co-signer they’re able to apply for a loan and get a car that they wouldn’t be able to get otherwise.
It’s not only for the young however, if you’ve recently had financial problems and your credit score has dropped significantly, then a co-signer could be a good way to get a loan that you need, but would otherwise be denied.
Who Should Co-Sign?
A co-signer needs to be someone who trusts you quite a lot, as they’re agreeing to take on your debt should you fail to pay it. They also need to be someone with a high credit score and good history so that they’ll actually have the desired effect on the loan.
For these reasons the most common loan co-signers are parents and grandparents, people who have a lot of trust in you and hopefully have a history of sound financial decisions.
Spouses are also a good choice of co-signer, provided that they gave their own source of income, otherwise the lender will not accept them as a viable co-signer.
It goes without saying but if you do cosign a loan then make sure you pay all of your loan payments on time, giving someone tons of unexpected debt is a very quick and easy way to ruin any relationship.
That’s all we got! Hopefully this answers your questions. If you have any more please don’t hesitate to contact us here.
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