Auto Loan Q&A: Cosigners
What is a cosigner on a loan?
A cosigner is generally a parent, family member or friend who agrees to share the loan obligation with the borrower.
Why would someone need a cosigner?
An individual who has not yet established credit, has limited credit or poor credit may need a cosigner to get loan approval from a bank. It’s more common than you may think.
If you have a co-signer is your interest rate based on their credit score?
Banks will take the average of the borrower and cosigners credit score to determine the interest rate. This is a common misperception. Borrowers often think that terms will be based on the cosigner’s credit score but this is not always true.
Is it easier to get a loan with a cosigner?
Yes, absolutely. A cosigner gives a lender more assurance that the loan will be repaid.
What are the risks and benefits of a cosigned loan?
The cosigner is obligated to pay any missed payments, as well as the loan balance if the borrower does not. If the borrower fails to pay or makes late payments, it could negatively affect the cosigner’s credit. The benefit is to the borrower who is able to get a loan and a better interest rate because it is cosigned by someone with a good credit history.
We are introducing a new monthly blog feature, “Ask Zola”. Zola Gearding is Kia Country’s Business Manager and is responsible for all customer finance transactions. Zola has over 10 years’ experience as an automotive Finance Manager. She enjoys helping customers find the most favorable loan terms and helping them to understand the complexities of automotive finance. This monthly Q&A includes most frequently asked questions and common misperceptions about financing.