Why You Might Need a Co-Signer for Your Loan or Lease
In certain credit situations, you may need a co-signer to get a car lease or loan.
People who have had credit problems in the past, or who have no credit history at all, may find it difficult or impossible to lease a new car or to get a car loan. Getting a co-signer might be the answer.
Finance companies and large banks, such as those who provide loan and lease services for car dealers, want to make sure that borrowers will fulfill their obligation. They want to make sure they only lend money to “credit worthy” customers who will pay on time and complete all payments.
Before we proceed, let’s be clear about the difference between a car loan and a car lease. Actually, the two are more alike than different. Both are financial obligations for a specific vehicle, for a specific, monthly payment, for a specified length of time.
Contrary to what some believe, car leasing is not car renting. Therefore, it is just as important, if not more important, to have a good credit history when leasing as with a car loan.
About your credit history
“ What you pay for your car loan or lease directly depends on your credit score”
Everyone who has ever had a credit card, department store account, car loan, home mortgage, or personal bank loan has a credit history or credit file. In fact, there are actually three credit files, in three different credit companies.
In those files will be details about credit accounts, the amounts still owed, credit limits, late payments, defaults, repossessions, and bankruptcies. Negative data can stay in the report for up to 10 years.
Where problems often arise is when a person has had no loans or credit accounts in the recent past, either because they are too young or simply didn’t want/need them, but now want to get a car loan or lease. Or maybe the person has a short credit history — only a couple of relatively recent accounts — not enough data for a clear “picture” of the person’s credit performance. This situation is called “insufficient credit.” Unfortunately, having little or no credit history has almost the same effect as having a poor credit history.
Your credit score
Car dealers, banks, and finance companies rarely look at someone’s entire detailed credit history report. Instead, they look at the person’s credit score, which is a single number that summarizes everything in the history report. It’s all condensed down to one number that instantly tells a bank or finance company about a person’s credit worthiness. For example, a score of 550 is very negative while a score of 750 is very positive.
Anyone planning to get a car loan or lease should know their credit score before they ever visit a dealer. What’s your FICO score? Find out now when you check your credit report for $1 at Experian.com! They tell you exactly how your score rates and how lenders will interpret it.
How does a co-signer help?
For someone with no credit or poor credit, a co-signer can be the answer to getting a car lease or loan.
A co-signer is simply someone with good credit who is willing to make your loan or lease payments if you cannot. Both your name and the co-signer’s name go on the loan or lease contract, although the co-signer is not a co-owner.
Lenders look at the credit score of the co-signer as “primary.” Approval of a car lease or loan is based primarily on the co-signer’s qualifications, which allows someone with no credit or poor credit to get the car they need.
A co-signer can be family or good friend who believes in your ability and commitment to make your payments on time and complete your obligation.
The co-signer should be aware that the new loan or lease will also appear in his/her credit history report. If the loan or lease is completed as promised, both reports receive a positive score.
Getting a co-signer is a great way for someone with no credit to begin building a good credit history — and for someone with bad credit to begin recovering. In some cases, it may be the only way.
If you don’t have a co-signer
Not everyone who needs a co-signer has one, or one who qualifies, or one who is willing. So what to do?
Many car dealers work with “sub-prime” lenders who specialize in providing auto loans to people who are credit challenged. However, when working with such lenders, interest rates vary widely, which means it is even more important to get multiple rate quotes to compare. And it’s not necessary to limit yourself to the lenders that a dealer works with. You can get your own independent quotes, such as from Auto Credit Express (see banner below) who is one of the largest sub-prime lenders in the country. It’s easy and quick to get a quote online. And you are not obligated to take their offer if you don’t like it.
Another recommended source of financing
If you are credit challenged and need a car loan, the best strategy is to contact as many sources as possible to not only find those who will approve you, but also those with the best deals and lowest interest rates.
However this takes time and knowing where to find the sources that might work for you.
Fortunately, there is a service that we recommend that does all the legwork for you. It’s PersonalLoans.com.
They don’t actually provide loans themselves but will hook you up with different financing sources, such as banks and credit unions, that best fit your needs and qualifications.
It’s a great service and it’s free. You are not obligated to accept any offer you might receive.