Very often when a person with problem credit is asked if there is a co-signer (also known as a co-maker) or someone who can help the application, the applicant will respond "no, I want to do this by myself." While independence is a great concept, we all need a little help from time to tme. Why might you need a co-signer? Here are a few reasons:
1) Income: you may not "budget" (based on the bank's payment to income or debt to income formula) for the vehicle you want or you may not be able to prove your income to the bank's satisfaction (but maybe your co-signer can!).
2) Light Credit: perhaps your time on the credit bureau is limited so that you have limited or light credit. In that situation, many banks want the strength of a co-signer to help strengthen the application.
3) Derogatory Credit: your credit may be so problematic that the bank might require someone to sign with you as an alternate means of collection if you should default on your loan because of your prior payment history.
4) Rate Reduction: very often a co-signer with better credit than you can result in a lower interest rate than if you financed the vehicle alone.
Does this mean you will always need a co-signer? Of course not! But it may help you get the vehicle you want at the payment you can afford. Bankruptcies, divorces, medical chargeoffs and the like all happen from time to time. Some times a co-signer is a way to help get past prior credit difficulties and re-establish your good credit rating!
Who might make a good co-signer? Almost anyone - though usually spouses or relatives are the easiest. Someone at the same address, or at least in the same state, usually helps even more.
One of the common misconceptions about co-signers is that somehow you don't get credit for the auto loan or that the auto loan counts for less in your credit history. This is just not true! The co-signed auto loan will show up on both your credit bureau and your co-signer's credit bureau and you both get credit! The only difference is that the account is reported as joint instead of individual.
We all want to do things on our own. But sometimes we need a little help from our friends.