When you have bad credit, it isn't always easy – or even possible, in some cases – to qualify for an auto loan on your own. This is where having a co-applicant can make all the difference. But do you need a co-buyer or a cosigner? Both can help you get the loan you need, but they have very different roles in the long run.
The Role of a Co-Applicant
A co-applicant is someone who signs a loan with you in order to help you meet the qualifications set by a lender. Depending on the type of co-applicant you're using, they can help you meet credit or income requirements, or both.
The two types of co-applicants are co-buyers and cosigners. Both agree to make the loan payments in the event that you can't. Having someone like this back you up can often help a lender decide in your favor when they're on the fence about approving you, which is one reason a co-applicant can help you get a car loan.
Whether the co-applicant is a co-buyer or a cosigner, they have to meet the lenders requirements for certain things, and lenders check their credit scores and credit reports in order to consider their eligibility. In both cases, their credit is affected by what happens with your loan. This is where the similarities end, however.
Adding a Co-Buyer to Your Auto Loan
A co-buyer, also called a co-borrower or joint applicant, is someone who signs the loan documents with you and shares in the ownership of the vehicle. Co-buyers are typically spouses, which comes with the added advantage of being able to combine incomes on a loan application. This means their income can be added to yours in order to help you meet a lender’s income requirement, or even qualify for better terms.
Co-borrowers are typically used when you need help financially, not credit-wise. This means the lender checks the co-borrower's credit, but, in some cases, they may not need to qualify for the loan individually because your credit has already qualified you for a loan.
Both you and your co-buyer share equal ownership of the car, and in some cases, spouses apply jointly for this reason alone. In this case, having the added security of a co-buyer may help you to qualify for better loan terms than you’d qualify for individually.
Qualifying with the Help of a Cosigner
The most significant difference between a cosigner and a co-buyer is that the cosigner doesn't have any ownership rights to the vehicle. Typically, a cosigner is required when your credit falls short of a lender's qualifications. Thus, a cosigner needs to have good to excellent credit, because you're essentially borrowing their credit in order to qualify for an auto loan.
Unlike a co-buyer, the cosigner needs to qualify for the loan on their own in order to be able to help you. The lender requires this to ensure that the cosigner is able to take on the responsibility of paying in the event that you can't, since your incomes aren't combined.
Are You Using the Right Type of Lender?
If you've been trying to get a car loan but are constantly told you need a cosigner or co-borrower due to bad credit, you may be trying to work with the wrong lenders.
Here at CarsDirect, we are teamed up with an exclusive network of special finance dealerships that have the lending resources available to work with people in all kinds of credit situations, including bad credit, no credit, and even bankruptcy.
Simply fill out our no-hassle, no-obligation auto loan request form, and we'll start the process of matching you with a local dealer that knows how to help. So, what are you waiting for? Get started right now to be on the way toward your next car loan!