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Heres what you should probably know before cosigning on a car loan.
What Does It Mean to Cosign a Car Loan?
You should fully trust anyone that you choose to cosign on a car loan for.
As the cosigner, you dont legally own the vehicle, but you are legally responsible for the loan.
This means if the main borrower fails to make payments, its on you to pay back the loan.
Missed payments or defaulting on the loan will hurt both the borrowers and your credit if you cosign.
Who Typically Needs a Cosigner?
While most car loans dont have a cosigner, some borrowers could benefit from a cosigner.
Check the Borrowers Financial Stability
Dont just sign on the dotted line.
check that your friend or family member is someone you trust.
They should be in good financial standing and have the income and accountability to make on-time payments.
This can help you monitor payments to avoid late or missed ones.
Consider a Cosigner Release
Some lenders allow cosigners to be removed after a certain number of on-time payments.
Otherwise, youll hurt your credit score and have a tough time borrowing in the future.
Cosigning may help someone you love get into a car, but its not always a great idea.
If you’ve got the option to, you should not cosign on the loan.
If the borrower has a history of missed payments or financial struggles.
If you oughta apply for your own loans in the future.
If theres no cosigner release option available.
If a cosigners release is not available, youre on the hook for the entirety of the loan.
This can affect your debt-to-income ratio and eligibility for future loans, so having a release is important.
Some lenders offer secured car loans where the borrower provides collateral.
This may include pledging something like another vehicle or another personal asset.
This can help borrowers with poor credit obtain a vehicle loan to purchase a car without a cosigner.
This can help increase their car loan approval chances without needing a cosigner.
Final Thoughts: Should You Cosign a Car Loan?
Cosigning on a car loan can help someone you know be able to buy a car.
You truly need to trust the person youre cosigning for completely before signing on the dotted line.
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