A co-signer can help you to obtain a car loan approval as long as she has good to excellent credit, a good debt-to-income ratio and enough income to afford the additional debt. If you can't obtain a loan with affordable and reasonable terms or an approval at all, a co-signer can secure favorable terms for your auto loan.
When You Should Seek a Co-signer
If you have poor credit, you might still obtain a loan approval as a high-risk borrower. To offset risk, the lender might require a large down payment and restrict the term of your loan to increase vehicle equity. This results in a high monthly payment. Borrowers with limited credit or no credit history at all might be declined for a loan or obtain a high interest rate as a term of approval. Using a co-signer with good credit and income allows you to obtain an approval that the co-signer would qualify for as a lone applicant, opening up your vehicle, payment and loan options.
The Application Process
The co-signer must apply for the loan with you and in person unless the lender or dealer allows otherwise. The co-signer must supply his Social Security number, income, employment, driver's license and housing information for the loan application. Once the lender approves your application, a loan representative will discuss your loan terms, such as maximum term, rate, down payment requirements and loan-to-value ratio, with both of you. The loan isn't established until you both sign lending contracts, so you can decide whether using the co-signer is beneficial.
Finding a Co-signer
Finding a co-signer might prove difficult because of financial risk. The co-signer is just as responsible for the auto loan as you are, and his credit may suffer as a result. The co-signer might have trouble initiating an additional line of credit until you've established a good payment history and decreased the amount of the loan. If you default on the loan, the co-signer's credit also suffers. Ask a close family member or friend to co-sign your loan. The person should have good to excellent credit and an income that affords her own debts and the amount of your car loan.
Considerations
Before moving forward, determine whether the ownership terms are worthwhile. You can't remove a co-signer from an auto loan, so if issues arise in the future, you'll still have to deal with the co-signer to sell the car or refinance the loan. Find out whether both names have to be on the title and who has to insure the car. Some lenders require both names on an insurance policy, so find out the lender's rules before finding a co-signer.
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