You might be able to acquire an auto loan even as a fresh-faced college graduate with nothing but a credit card with a small limit to your name. If you have bad credit, you may need a co-signer on an auto loan, but you never know until you actually apply. If you do ask someone to co-sign a loan, be sure he understands his legal responsibility for the debt in the event you don't pay.
Identification
You can get any auto loan without a co-signer as long as you meet the approval criteria of the lender. In general, most creditors look at your credit rating from the three major credit reporting bureaus, monthly income and your debt obligations. If you fail to meet a creditor's lending standards, a co-signer might help you gain approval but nothing is guaranteed. The co-signer needs to meet the lending standards of the creditor too. Federal law requires lenders to disclose a co-signer's legal liability for a debt, but you should discuss with the co-signer what happens when you default on the loan anyway, including damage to his credit report if he doesn't fulfill your obligation.
Bad Credit Auto Loans
Some lenders specialize in a subset of the auto loan industry called bad credit auto loans -- most lenders consider anything less than a FICO credit score of 620 to be "bad credit." Providers of bad credit auto loans may not require a co-signer, but they make up for the extra risk with high interest rates and origination fees that might be five times higher than the normal rate of 1 percent of the total loan value, according to Credit Loan.
Considerations
Until you apply for an auto loan, you don't know whether a lender will accept an application without a co-signer. Ideally, you should ensure that you have several months of good payment history on all of your accounts, such as a mortgage and credit cards, and eliminate as much debt as possible before you send in an application. Applying for an auto loan dings your credit score a few points, so you want to avoid submitting many applications over more than a few weeks.
Tip
Run your own credit for free via Annual Credit Report. Auto loan enders tend to focus on the previous 18 to 24 months of payment history, so review your report for potential errors or trouble spots and correct them. If you have a loan in default, remit payment immediately or talk to that lender about getting the account current. When you go auto loan shopping, put in all applications at once. The FICO scoring system counts all auto loan requests within 45 days -- assuming the lenders use the latest algorithm -- as one inquiry, which minimizes the impact on your score.
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