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The Basics about Bad Credit Car Loan Co-Signers

If you have bad credit, getting a car will be much harder than a consumer with average or good credit. But, don’t despair; you have a few options. A buy here, pay here dealership is a great choice, but might make you uncomfortable because of how different of a car buying experience it is. If that’s the case, then you can always check with your credit union, since they are more lenient with loans than dealerships — other than a BHPH — or a bank. If you still get denied, you have one last-resort option: a co-signer. A co-signer is a great way to get a loan, and even if you still have an interest rate that’s just as painful as your credit score, at least you’ll be able to get a car.

But, before you phone a friend for help, it’s important to learn at least the basics of what having someone co-sign on a loan for you means – since your fates will directly intertwine, to throw a dramatic spin on it.

Requirements for a Co-Signer

When asking friends to co-sign on a bad credit car loan, it’s best not to play favorites. Not because you’ll hurt their feelings, but simply because they need to have a good to excellent credit score. It doesn’t matter if you bring an army of bad credit buddies with you to sign the loan — it won’t get approved.

Find that friend who has a credit score of at least 700. It also wouldn’t hurt to find one who has an excellent credit history as well. As in, someone who doesn’t have any negative marks on his or her credit score, whatsoever. Other lender requirements may include evaluation of monthly bills, and a income requirement to help prove that this individual is financially stable (and responsible) enough to take on a loan if the primary lender — the one with bad credit — misses a payment. More on that later!

There to Sign — Not Help Pay

It’s also important to note that this friend is there to simply sign the document, not help you pay for the actual vehicle. Unless you beg them for money, they aren’t legally obligated to help pay it off unless you miss a payment or default on the loan. Essentially, what you’re doing is using their stellar credit to compensate for your abysmal one. In turn, getting an average score that bumps up your chances of loan approval.

That’s right, it’s not guaranteed that you’ll get approved. But, at least you have a better chance this time around.

Miss Payments, Lose a Friend

Here’s the part you need driven into your skull with a ball-peen hammer: when you ask a friend to co-sign in order to help you get a bad credit auto loan, you might as well be asking them to make a blood contract between you and the lender.

If you miss a payment, they have to pick up the slack and pay for it. If you default on the loan, then they will have to finish paying it off. If that’s the case, then chances are you won’t have that friend come the end of the loan term.

Bottomline: only get a co-signer if you’re confident in your ability to pay off the loan. If not, the signature guarantees that your friend will get stuck holding the bag — and that’s just wrong.

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