The term “co-signing a car loan” implies giving a guarantee to lender that the cosigner is liable to pay missed payments on behalf of loan applicant. To that effect, it is important that the person who is co-signing an auto loan must have very good credit. But it is to be understood that mere co-signing of any loan does not give cosigner ownership rights. If borrower stays current on monthly payments and repays loan dues on time, borrower as well as cosigner will witness rise in credit scores. However, if the borrower misses few payments then the credit scores of applicant and cosigner could be at risk.
It is to be noted that primary applicant is not getting a co-signer for co-signing an auto loan as a reference character. The circumstances can be far more risky than presumed as failure of borrower to stay current on payments can lead to disastrous consequences for co-signer. Lender is legally recover unpaid loan dues, late fees as well as repossession costs from cosigner.
In a way, co-signing any type of loan is a risky proposition but in certain unique circumstances, it could be beneficial. Many parents do co-sign student auto loans or a newly married couple that applies for mortgage for homeownership may require spouse to co-sign loan. Besides, there could be another situation in which co-signing a loan can make real sense. For example, if some friend or relative is jobless but needs a car to travel distances for appearing in interviews, one can co-sign his/her car loan presuming that once the person gets a job, he may pay car instalments regularly. Similarly, during some emergency situations, people may need to apply for a loan with a co-signer.
Borrowers, who are in urgent need of any type of car financing, require co-signers to obtain early loan approvals. Nevertheless, it is the co-signer’s credit reputation that is at stake as it takes numerous years to build good credit. A couple of missed payments from the borrower can undo all hard work put in by the cosigner. And in the worst situation, it can even make the cosigner qualify for lower interest rates on any kinds of loans in future or get altogether denied for financing.
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