The Role of Cosigners in Securing Bad Credit Car Loans

Posted Friday, Jun 28, 2024

A cosigner is someone who agrees to take on equal responsibility for the loan repayment along with the primary borrower; having a cosigner can increase your chances of getting approved for the auto loan if you're not meeting the lender's requirements. They usually have a good credit history and a stable income, and adding their name to the loan provides an additional assurance of security to the lender.

If the primary borrower fails to make the loan payments, the cosigner becomes legally obligated to repay the loan in full or take over the payments. They are commonly needed when borrowers have limited credit history, poor credit, or insufficient income to qualify for the loan on their own. Lenders may also require them if the borrower is a first-time car buyer or has a high debt-to-income ratio.

However, being a cosigner is a significant responsibility, and before agreeing to cosign, individuals should understand the potential risks involved. If the primary borrower defaults on the loan or misses payments, it can impact the co-signer's credit history and financial situation.

Why Cosigners Matter in Bad Credit Car Loans?

Some lenders may ask for a cosigner if the borrower has a poor credit score or a significant amount of debt compared to their income. Even if the borrower meets the requirements on their own, having a cosigner with good credit can get them lower interest rates and more favorable loan conditions.

The lender considers both the borrower's and the co-signer's credit histories and financial situations when reviewing the loan application. Having a cosigner with a strong credit history decreases the lender's financial risk, increasing your chances of qualifying for a loan you might not otherwise get.

Every auto lender has their own standards for creditworthiness. Generally, a cosigner should have a credit score of 670 or higher. Lenders also consider their debt-to-income ratio (DTI), which measures the proportion of their income that goes towards debt payments. Since they may be responsible for monthly loan payments if the primary borrower defaults, their DTI must meet lender-specific limits.

You might need a bad credit loans with cosigner if:

  • You Have Limited or No Credit History: If you have never had a credit account or are new to credit, the models used to calculate credit scores may not have enough information to generate a score for you. Having a cosigner can help you secure a loan even if you have a limited credit history.
  • Your Debt-to-Income Ratio (DTI) is Very High: It means that you have a significant amount of debt compared to your income, which can make it challenging to manage your car loan payments. To determine your DTI, you need to add up all your monthly debt obligations, including your mortgage, minimum credit card payments, and student loan payments, and then divide that total by your gross monthly income. Ideally, a DTI of 36% or lower is recommended to qualify for favorable terms on an auto loan. However, if your DTI exceeds 50%, lenders may reject your application or impose high interest rates.
  • Bad Credit: Having a good credit score is important because it can help you get better loan terms and larger amounts. For instance, if you're looking to get a 60-month, $30,000 auto loan in 2023, borrowers with credit scores between 720 and 850 had an average interest rate of 7.7%. On the other hand, borrowers with credit scores ranging from 500 to 589 had to pay an average interest rate of 17.65%.

Responsibilities of Cosigners

Being a co-signer can have significant financial consequences. As discussed before, as a cosigner, you become legally responsible for the debt, which means if the borrower fails to make payments as agreed, you may be required to pay the entire amount.

Secondly, the loan that you co-sign will be reflected on your credit reports, which can affect your credit scores in either a positive or negative way, depending on how the borrower manages the loan and their credit.

Co-signing for someone is a big responsibility, so don't complete a credit application without having a thorough financial discussion with the primary borrower. Talk to them about their ability to manage their payments and to create a plan in case they struggle to meet their financial obligations.

How to Get Car loans with Cosigner Bad Credit

If you choose to cosign a car loan for a family member or friend, there are a few conditions you must meet. Auto lenders generally prefer cosigners who have a good credit history and good income. When cosigning a car loan, you typically need to meet the following criteria:

  • Good Credit History: Lenders want the co-signer to have a strong credit history. This means making all your monthly payments on time, having a low amount of debt compared to your income, and having a long record of using credit responsibly. Although there is no specific credit score standard, the higher the score, the better.
  • Sustainable Income: Auto lenders also consider the cosigner's ability to repay the loan in case the primary borrower fails to do so. They will analyze the ratio between your debt and income, which includes your rent or mortgage payments, current auto loans, and any other financial responsibilities you have.
  • Employment History: When auto lenders evaluate you as a signer, they check not only your income but also your work experience and may consider the duration of your employment with your current employer.

When you agree to co-sign a loan, you need to find a lender who accepts applications with a secondary signer, and you both will need to complete the application process. This involves providing your contact details, employment history, and a copy of your credit report.

Several lenders are open to cosigners. You can compare loan rates from credit unions, banks, and dealerships to find the most suitable lender.

Benefits of Cosigning a Car Loan

In general, the primary borrower is the one who primarily benefits when you co-sign a loan. However, it is also an opportunity for you to make a positive difference for someone facing financial difficulties. Here are a few benefits you may experience if you co-sign a loan:

  • Help a Friend or Family Member

The primary benefits of being a co-signer is the ability to help a friend or family member in a time of need. For instance, you may want to help your children buy a car or support a friend in rebuilding their credit after facing financial challenges. By co-signing a loan, you can help them to buy a much needed car at a more affordable rate.

  • Improve Your Own Credit Score

Co-signing a car loan can potentially have a positive impact on your credit, as long as the loan is repaid successfully. Since you share equal responsibility for the loan, it will be included in your credit report. On-time payments will contribute to your payment history, and having the car loan on your credit profile may improve your credit mix, which could reflect positively on your credit.


When considering cosigning, it's important to think about the terms outlined in the contract, as well as your own capacity to handle additional financial responsibility and risk. Assess the strength of your relationship with the borrower and your comfort level with sharing debt obligations.

Discuss with the primary borrower about the potential outcomes of cosigning, including understanding the impact on your credit, the financial risks you may face if they default, and how these issues could affect your own financial well-being. Go through the loan agreement together to ensure both parties have a clear understanding of the cosigning arrangement.

As a cosigner, it's crucial to have confidence in the borrower's ability to repay and maintain open lines of communication throughout the repayment process, and not to put yourself in a vulnerable financial position.

By extending a helping hand and agreeing to support your friend or family member, you are providing them with an opportunity to build their credit and secure a better financial future.