If it’s your first time buying a car, you likely won’t have enough funds to pay for it in cash. And if you’re a young driver, you likely also won’t have the necessary credit history to get a loan.
In these situations, or in situations where you may not be approved for a loan due to poor credit history, you may want to seek out a co-signer.
What is a Co-signer?
According to Investopedia, a co-signer is very much what it sounds like: An individual who signs on alongside you whenever you take out a loan to bolster your chances of being approved.
Co-signers tend to be close friends or direct family members because co-signing requires a great deal of trust and confidence in the primary borrower. If a primary borrower fails to make payments on a loan, the co-signer is financially responsible for fulfilling those obligations.
Why Should I Get a Co-signer?
Co-signing is a wise move if you’re a first-time borrower with no credit history or if you have credit problems that damage your ability to borrow money. A co-signer can make you more desirable as a loan applicant because the financial institution assumes less risk.
The lender will likely focus on the co-signer’s financial history more than yours, and if they prove to be a viable candidate for a loan on their own, that increases the chances that your request will be approved.
Getting a co-signer for a loan also helps you out financially in different ways.
According to Investopedia, the support of a co-signer will likely help you earn better terms for the loan, like a lower interest rate or increased principle. If you remain diligent about paying on time, it will help increase your personal credit, enabling you to secure future loans without a co-signer.
Who Should Be My Co-signer?
If you’re a young driver seeking a co-signer for a first-time car loan, The Balance’s Justin Pritchard recommends starting with your family. Parents or guardians are a great first choice for co-signers, and they’re often more willing to help you.
If you need to ask a more distant relative or someone who may be hesitant to help, Pritchard recommends being candid about your financial situation, demonstrate that you understand the terms of the loan, and show that you understand the gravity of the situation both for yourself and for your co-signer.
It’s also important that you know the risks you face and not just financially.
NerdWallet’s Amrita Jayakumar points out that flaking on your payments and leaving a friend or family member in the lurch can understandably lead to the erosion of a healthy relationship.
If there is someone close to you whom you feel you can trust to co-sign for you, and if you have the confidence that you will be able to uphold your end of the bargain, getting a co-signer is a great first step to securing not just a new car but a brighter financial future.
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