Co-Borrowing Auto Loans: The Basics

Co-Borrowing Auto Loans: The Basics


When people have limited credit, a steady set of income, and a desperate need for a car, it might be in their best interest to apply for auto loans with a co-borrower. Many lenders frown upon giving auto loans to individuals with limited credit, since they cannot determine the risk of the individual. There is no credit history to help them determine if the individual will or will not pay the loan back. Many people are co-borrowing with spouses, boyfriends/girlfriends, life partners, children, relatives, etc. to increase their credit history and get the loan. Before people sign into co-borrowing auto loans or before they ask someone to sign into co-borrowing auto loans, know the facts:

1) People with limited credit have a person with more credit (usually fair to good) sign into an auto loan with them as a co-borrower to be approved for the auto loan. The co-borrower has signed into some of responsibility of the auto loan. The lender wants a guarantee if the person with limited credit defaults on the auto loan, the person with more credit will step in. The lender’s risk is lessened; therefore he or she is more likely to approve the auto loan.

2) Co-borrowers have an entitlement to the asset (car or truck), since their name will also appear on the title at the DMV. The only way to remove a person from the title is to have the borrower or co-borrower in person go to the DMV and ask to be removed.

3) Even if a co-borrower or borrower is removed from the title, it does not affect the auto loan. That means the lender will still contact both individuals if the terms of the auto loan are not met. If the borrower skips paying the monthly payments, the co-borrower will also be contacted to pay the amount.

4) If the vehicle is repossessed, not only does the borrower suffer the credit consequences, but the co-borrower does as well. Expect both credit scores to take a plummet.

5) On your credit report, there is a co-borrower and co-signer section that will let the lender know if you co-signed or co-borrowed an auto loan with another person. Most lenders do not distinguish or put one in more light than the other. Meaning, the only real difference between co-signing and co-borrowing, is that with co-borrowing you are entitled to the asset (car or truck) as much as the borrower, and with co-signing you are not.

Co-borrowing can be a sticky situation with both people taking on the responsibility of a car or truck, but with only one person actually driving it around. We recommend only co-borrowing with individuals you feel are responsible and only when you are financially secure enough to be able to take on an extra auto loan without a hit to your personal savings. If you are still unsure about co-borrowing auto loans, contact CarFinance.com for more information.

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