Cosigning a Car Loan: Should you Cosign?
We have all seen it happen- sometimes to friends, sometimes to family and sometimes to our stunned selves. The story is like this: a buyer falls in love with a car and the dealer starts to seal the deal, leaves the buyer while he goes to start the paperwork for he financing, comes back and announces that the buyer’s credit isn’t good enough to qualify for that car and is there a friend or family member who would be willing to cosign on the loan with them? Not that there aren’t any other big myths flying around that car lot but this entire scenario sums up some of the biggest ones!
Myth: Your credit score isn’t high enough to qualify you for a loan.
Truth: Your credit score isn’t high enough for the dealership to give themselves as hefty a margin of mark up on the APR that they would like to make.
Myth: Having a cosigner will help you build your own credit.
Truth: The person with the high credit score will be the primary on the loan and it does not help the person with the lower score.
Myth: Cosigning for someone does not hurt your credit at all.
Truth: If you are the primary on a loan as a cosigner it will change your debt to income ratio so other lenders will take the debt into consideration if you try to get another car loan or a house loan. It could make you ineligible for either one if it doesn’t appear that you make enough to cover everything.
What should you do?
If you are being told to find a cosigner, find your own financing at a bank, credit union or even an insurance company like State Farm. Don’t put a friend or family member at risk of lowering their chances of buying things for themselves. Do not go to the car lot without comparing rates and getting prefinanced.
If you are being asked to cosign, politely decline and guide the buyer towards finding alternative financing sources. Beyond the logistics explained here, there is also the risk that the buyer will default on the loan or your relationship will not always be as close as it is today and it is like being tied to someone forever that you may not want to have financial ties with.
Stumble It!
Myth: Your credit score isn’t high enough to qualify you for a loan.
Truth: Your credit score isn’t high enough for the dealership to give themselves as hefty a margin of mark up on the APR that they would like to make.
Myth: Having a cosigner will help you build your own credit.
Truth: The person with the high credit score will be the primary on the loan and it does not help the person with the lower score.
Myth: Cosigning for someone does not hurt your credit at all.
Truth: If you are the primary on a loan as a cosigner it will change your debt to income ratio so other lenders will take the debt into consideration if you try to get another car loan or a house loan. It could make you ineligible for either one if it doesn’t appear that you make enough to cover everything.
What should you do?
If you are being told to find a cosigner, find your own financing at a bank, credit union or even an insurance company like State Farm. Don’t put a friend or family member at risk of lowering their chances of buying things for themselves. Do not go to the car lot without comparing rates and getting prefinanced.
If you are being asked to cosign, politely decline and guide the buyer towards finding alternative financing sources. Beyond the logistics explained here, there is also the risk that the buyer will default on the loan or your relationship will not always be as close as it is today and it is like being tied to someone forever that you may not want to have financial ties with.
Labels: Buying Cars, Car Loans, Financing, Risks
Stumble It!
posted by Miss Mota Mouth@ 3:41 PM 0 Comments
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