The Advantages of Having a Cosigner on Your Car Loan

Having a cosigner for your car loan provides a borrower with an opportunity to own a car. Individuals who are first-time buyers, have no credit history, are students or have bad credit benefit from having another person sign on the loan. Many times borrowers in need of a cosigner will have a family member or close friend help with the loan. This is usually easier to accomplish, especially in families that are willing to help out a younger borrower who is just starting out.

Lower Interest Rates

One advantage to a borrower that uses a cosigner is that the car loan interest rate tends to be lower. This helps the borrower save money on their monthly payments over the interest rate that they would receive if borrowing on their own. Lenders look at the overall credit risk in determining what interest rate is suitable for a borrower. A borrower who is using a cosigner is collateralizing that risk and providing the lender with assurance that the loan will be paid.

Opportunity to Build Credit Rating

A new borrower that has not yet established their credit history benefits by having the time to build their credit.  A cosigner allows the lender to make the loan and the borrower the opportunity to establish their creditworthiness by paying the loan.  When a borrower makes timely payments on the car loan this helps to build their credit, eliminating a need in the future for a cosigner.

Having a “Credit Coach” to Keep on Track

A borrower can take advantage of a cosigner’s excellent financial and credit rating as a model for his or her own credit behavior. A cosigner has as much to lose as they do to gain from this experience so they are motivated to ensure that the borrower makes payments when due. This creates a discipline in the borrower that carries through their lifetime credit and borrowing experience. Instilling these habits early on in the borrower makes them a strong credit candidate later in life.

Cosigner Benefits

A cosigner that is willing to lend their reputation and credit rating to a borrower also benefits from the exchange. The cosigner receives a sense of self-worth and importance as they help a new borrower get established and create a positive credit profile. The impact of this type of goodwill is important to the cosigner and should not be viewed lightly. Giving another borrower an opportunity to begin his or her credit life on a good footing is an inspiring event for a cosigner.

 


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