Unemployment is a form of temporary income. Most lenders won't approve a loan without a stable income and verifiable employment. A cosigner, however, secures the terms of your loan with his income and credit rating. Whether or not you'll obtain a loan approval depends on your and the cosigners credit history and income.
Debt-to-Income Ratio
Lenders review each loan applicant's debt-to-income ratio. This ratio consists of the money you and your cosigner have coming in compared to the amount of debts you have to pay out. Because your cosigner is as responsible for the car loan as you are, the lender considers his total debt responsibility. If your cosigner's debt responsibility isnt in line with his income, the application might be declined. Your cosigner must also prove he can afford the payments even though you plan to make them.
Payment History
Aside from a good debt-to-income ratio, your cosigner must also have good credit, which requires an established history of paid accounts. For example, a cosigner who just opened a credit card as his only piece of credit history isn't likely to prove an ideal cosigner. He shouldn't have any repossessions, bankruptcy, tax liens, foreclosures or past due payments listed on his credit report. Even if you have excellent credit yourself, using a cosigner with a poor payment history might affect your chances of a loan approval.
Preapprovals
To ultimately determine if a cosigner can help you obtain a car loan while youre on unemployment, apply for a loan preapproval with your cosigner. Check the rates of lenders before you determine where to apply. Once you find a lender, apply with your cosigner and secure your loan before you start shopping for a car. Approval processing differs by lender, but you might wait up to one week for the lenders decision.
Other Options
If you can't obtain a loan while on unemployment because of cosigner issues, wait until you're working again before applying for an auto loan. Consider using a buy here, pay here lot, which is a dealership that lends directly to buyers. These dealers often lend to people with credit issues who can't obtain a loan elsewhere because of income, employment history or credit score. Rates are often higher and require a shorter term for quick payoff, but might prove an ideal option if you need to purchase a car immediately.
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