How Cosigned Car Loans Affect Your Credit Rating

Cosigned car loans are more affordable for people with bad credit scores who use a cosigner with better credit. Through the cosigner, the loan becomes less risky for the lender. This lower risk translates into better terms and lower interest rates. However, cosigned car loans will not improve your credit as much as independent car loans.

Slowly Build Credit

When you sign for your own car loan and pay it off, you will see your credit grow. By making consistent payments, the score can grow very rapidly. Because a cosigned loan represents less financial risk to the borrower as well as the lender, however, the borrower's credit will not go up as much as if the loan was independent. Further, the cosigner may be held responsible if the borrower defaults, and the cosigner’s credit may suffer. 

Good Option for Young People

Even though the credit increase is smaller with a cosigned loan, it is often the only type of loan a person with a short credit history can achieve. This is very true with young people who have relatively low salaries and have not taken out loans in the past. By building a credit slowly through a cosigned loan, a borrower can improve the credit score in order to get an independent loan the next time around. 

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