So you applied for an auto loan and was told that you need a co-signer. You will need another person to sign the contract in order for you to obtain financing. Finding that other person may seem easy, but in reality it can be challenging. Not just any person in Oklahoma City can be a cosigner. The person you choose have requirements he or she should abide by in order to be accepted by the lender as a cosigner. Listed below are what your chosen cosigner needs to have:
Good or excellent credit
Just like you, your cosigner will be assessed based on his or her creditworthiness. Lenders require cosigners to have good to excellent credit. A potential cosigner typically needs to have a credit score of 700 or above. However, different lenders have different standards when it comes to credit—some lenders may accept cosigners with scores below 700. It all depends on the situation. For instance, in the case of borrowers with bad credit, cosigners need to have excellent credit in order to qualify.
The creditworthiness of the potential cosigner matters because he or she will be sharing the responsibility of the loan. In the event you default on the loan, the cosigner will assume debt repayment. Lenders prefer individuals with higher credit scores because high scores suggest financial responsibility. People with high credit scores make payments and do it on time.
Proof of income
If an individual will be assuming the loan responsibility, he or she needs to have the ability to repay. Lenders determine and guarantee a potential cosigner’s ability to repay by requiring proof of income. Salaried individuals are required to present pay stubs or wage vouchers. Meanwhile, the self-employed or those with their own business are asked of income tax returns.
If you are going to choose a cosigner, make sure he or she has a source of income or assets that will allow him or her to cover the loan should you default. If you are unable to present proof of the cosigner’s financial capability to settle the loan, your auto loan application will be denied.
Proof of stability
Many lenders do not just ask for proof of income—they also require stability. This means that they ask for a cosigner to have not only a stable job or source of income but also a permanent residence. Lenders favor borrowers and cosigners who have been working at their current job for a long time because the tenure implies stability; these people are more capable to make payments on the loan because their employment is deemed more secure. Lenders also favor those who have stayed in the same house and community for years because they will be easier to find if the loan is defaulted.
The Borrower’s Responsibility
Consider yourself lucky if you find someone who is willing to cosign your auto loan for you. Do your cosigner a favor by making payments on time and settling the loan yourself. While the loan obligation is shared by the two of you, it is mainly your responsibility. Keep you and your cosigner out of potential credit—and financial—trouble by paying the loan.