Should I Cosign for a Car Loan?

When to cosign for a car loan

Co-borrower

A cosigner is also known as a co-borrower because they are jointly responsible for the borrowed loans — whether they are mortgage loans, student loans, or auto loans.

If the potential borrower needs to find a cosigner in order for them to be approved, chances are they either have no credit history or bad credit score, which either puts them in a non-approval status or subprime status, respectively. Lenders are usually very wary when it comes to these types of clients. Therefore, having the presence of a cosigner can alleviate the risks that the borrower poses.

Risks of Being a Cosigner

If you are being asked by a relative, spouse, or close friend for doing you a huge favour by being their cosigner, you must understand the risks associated with it — risks that are not originally yours to take on.

If you consent to being a cosigner, you are tied to the agreements of the loan for the duration of the term. This means you have just as much responsibility as the borrower in repaying debts. Should the borrow defaults on the loan or even fall into delinquent status, the cosigner will have to carry the burden and pay the back the loan.

If you consent to being a cosigner, you are tied to the agreements of the loan for the duration of the term.

Another disadvantage to keep in mind if you are a cosigner is credit score risks. Since the cosigner’s credit rating was utilized in order for the borrower to get approved for a car loan, that credit rating is now at the mercy of the borrower’s repayment behaviour for this term.

Moral Role of a Cosigner

The only real advantage to being a cosigner is being a reliable friend or family member with a respected credit score. You must first acknowledge your role in helping the borrower get back on their feet by helping them build credit score, or at the very least, establish a credit history.

However, as a cosigner, you must be able to trust the borrower, as a failed payment will show up on both credit reports.

Risk-Free Alternative

If you are still reluctant as a cosigner because of all the risks involved, then Canada Auto Experts can still help you be a good friend or family member. Just send them this link to our online car loan application which should only take 2 minutes to complete. As long as they have a consistent income, we can guarantee their approval for a loan. You can also get them to call 1-855-550-5565 to speak to an auto loan expert, who can guide them through the application process. Building credit is just 2 minutes away.