Can a Cosigner Help Me Get a Lower Interest Rate on a Car Loan?

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Content Manager

Bethany Hickey is a Content Manager and Writer for Auto Credit Express, CarsDirect, and many other automotive blogs. She's a graduate from the University of Michigan-Flint, with a bachelor’s in English-Writing. 

, Content Manager - July 9, 2020

Having bad credit can mean running into some issues getting approved for a car loan. A cosigner could be the way you earn an approval, and possibly help you qualify for a lower interest than if you applied alone.

Cosigners and Approval Odds

When you ask a cosigner to sign onto an auto loan, you’re lowering your risk as a bad credit borrower. This is because the cosigner promises to make the car loan payments if you’re unable to, and they also help by attaching their good credit score to your loan.

Since the cosigner has a better credit score than you, and you have a backup payer, having a cosigner may be able to help you get a lower interest rate than if you were to apply by yourself.

Whether or not a cosigner can help you qualify for a low interest rate depends on a lot of things. If your credit is really low, a cosigner may only be able to help you get approved instead of helping you to qualify for the lowest interest rate available.

There are many things that influence an auto loan’s interest rate. However, if you got a higher interest rate than you wanted even with a cosigner, there are other things you can do to lower your interest rate or decrease your interest charges during your loan term.

What Influences Your Auto Loan Interest Rate

If you want a lower interest rate, a cosigner could help you get approved for a better one, but it’s never a guarantee. The interest rate you qualify for depends on a lot of factors such as:

  • Your credit score – Your credit score serves as a snapshot of your creditworthiness and how you are handling and have handled repaying credit. Typically, the lower your credit score, the more you’re charged in interest.
  • Your cosigner’s credit score – When you apply with a cosigner, their credit score is also factored in. They help lower your risk of defaulting on the loan, which can lead to a lower interest rate.
  • The car you’re financing – As a general rule, new vehicles have lower interest rates. Used cars have higher interest rates because their value is harder to nail down because time, mileage, and the market all affect value.
  • The length of your loan term – Generally, the shorter your loan term, the lower your interest rate.
  • The overall market – The Federal Reserve’s benchmark rate can also influence your auto loan’s interest rate. However, there are lots of lenders, so it’s worth your time to rate shop and find a lender that can work with your credit situation and help you qualify for the lowest rate you can.

Paying Less in Interest Charges

If you qualify for a higher interest rate than what you would have liked (even with a cosigner), you can lower your interest charges by looking into these options:

  • Large down payment – Car loans are almost always simple interest loans, which means you’re charged interest daily on the remaining balance of your loan. So, the less you finance, the less you can be charged interest on in the first place. A large down payment or an equity trade-in can help lower your overall loan amount and interest charges.
  • Shorten your loan term – A longer loan term can mean a lower monthly payment, but it could also mean lots of cash in interest charges. Aim for the shortest loan term you can afford, or make extra payments when you can.
  • Refinance after a while – If your credit score improves after you’ve had the loan for at least a year, you can look into refinancing. Refinancing is when you replace your current loan terms with a new one. The goal is to get more favorable terms like a lower interest rate, and to get a lower monthly payment. You can also lengthen your loan term, but this would mean more interest charges. You can also lengthen your term and lower your interest rate if your improved credit score allows.

Another thing to consider with refinancing: it's the only way to remove a cosigner from an auto loan. If there comes a time when your cosigner wants to be taken off the loan, or you want to remove them, you’re going to need to meet the refinancing requirements to do so.

Bad Credit Car Loans

If you’re looking for your next auto loan and you need a lender that can work with your poor credit, look no further! Here at CarsDirect, we match borrowers to dealerships in their area that have bad credit lending options, called subprime car loans. Subprime auto loans are reported to the credit reporting agencies, meaning you can improve your credit score with on-time payments, and work to rebuild your credit score over time.

Generally, you can expect to be charged a higher interest rate as a bad credit borrower on most loans, even with the help of a cosigner. But it doesn’t have to be like that forever! It’s never too late to start working on your financial habits, improving your credit score, and working to qualify for the lowest interest rate you can.

Getting started is easy: fill out our free, no-obligation car loan request form, and we’ll look for a dealer that has the lending resources you need.

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, Content Manager

Bethany Hickey is a Content Manager and Writer for Auto Credit Express, CarsDirect, and many other automotive blogs. She's a graduate from the University of Michigan-Flint, with a bachelor’s in English-Writing. 

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