Pros and Cons of a Cosigner on a Car Loan

What Is a Cosigner?

A cosigner is someone who applies for a loan with you and agrees to make loan payments if you can't. If you don't make your car payments, your cosigner has a legal responsibility to make them under the loan contract.

During the application process, your lender will check the cosigner's credit history and debt-to-income ratio (DTI) and will do the same with yours. Often, having a cosigner with strong credit can help you qualify for a loan you might not otherwise get.

Tip: A cosigner typically must have a good credit score, sufficient income and a debt-to-income ratio under 50% to help you qualify for an auto loan.

Pros and Cons of a Car Loan With a Cosigner

Adding a cosigner to your car loan may improve your chances of qualifying for the loan and securing a good interest rate. But there are drawbacks to consider. Weigh these pros and cons before asking someone to cosign your car loan.

When to Consider a Cosigner for a Car

You might want a cosigner for an auto loan if:

You Have Little or No Credit History

If you've never had a credit account or are new to credit, credit scoring models may not have enough information to generate a credit score for you. A cosigner can help you get a loan despite a thin credit file.

Your DTI Is Too High

A high debt balance relative to income could make it hard to pay your car loan. Typically, a debt-to-income ratio of 36% or lower will help you qualify for favorable terms on an auto loan. If your DTI is over 50%, however, lenders may deny your application or charge high interest rates.

Find your DTI by adding up your monthly debt obligations—such as your mortgage, minimum required credit card payments and student loan payments—and dividing the total by your gross monthly income.

You Have Poor Credit

Adding a cosigner with good credit scores may help you qualify for better loan terms and larger amounts. According to Experian's State of the Automotive Finance Market report, the average annual percentage rate (APR) for a new car auto loan in the fourth quarter of 2024 was 4.77% for borrowers with VantageScore^® credit scores between 781 and 850. Borrowers with scores of 501 to 600 paid an average rate of 13.08%.

When Not to Consider a Cosigner for a Car

Asking a cosigner to back your loan isn't always the right choice. You'll need to consider factors like whether you can afford the monthly payments and if you're willing to risk conflict with your cosigner.

You Can't Afford the Car

If you think a new car loan payment may strain your budget, it's best to hold off—rather than signing the loan documents knowing your cosigner will need to step in. Consider saving for a bigger down payment to offset the amount you'll need to borrow. This lowers your monthly payments and reduces your risk of defaulting.

Learn more: How Much Car Can I Afford?

You Don't Want to Risk Conflict With Your Cosigner

Your cosigner takes on risk when they agree to back your loan. They're equally on the hook for making payments if you default. And if they can't (or won't) make the car payments, their credit will suffer along with yours. Any legal actions your lender takes can also affect your cosigner.

Consider getting the loan without a cosigner if you don't want to risk straining the relationship. You could focus on improving your credit, increasing your income or saving for a larger down payment to improve your chances of getting a loan with good terms.

Your Cosigner Doesn't Understand the Risks

A cosigner should understand their rights, responsibilities and risks before signing your car loan agreement. You can explain the information yourself, or ask them to contact the lender with any questions beforehand. They can use the information to help them decide if they're willing to be part of your auto loan.

A few points to go over:

• The cosigner doesn't have legal rights to the vehicle and doesn't share ownership. If you apply with a co-borrower, however, they will co-own the vehicle and be equally responsible for payment.
• The cosigner will be responsible for making loan payments if you can't.
• The cosigner is also responsible for covering other expenses, like late fees, if you don't.

Learn more: Co-Borrower vs. Cosigner: What's the Difference?

How to Get a Car Loan With a Cosigner

To get a car loan with a cosigner, follow these steps:

1. Find a lender that allows cosigners. Contact banks, credit unions, auto dealerships and auto lenders to see if they are open to cosigners.
2. Choose a potential cosigner. A trustworthy family member or close friend with a relatively high credit score, steady income and minimal debt is an ideal person to ask.
3. Talk to your cosigner. Your cosigner may be more open to helping you out if you show you've put serious thought into your auto purchase. Discuss your plans with your potential cosigner and answer any questions they have.
4. Check your credit reports and scores. Both you and your cosigner should get copies of your credit reports and look for negative entries that may be affecting your scores, including late payments and high credit card balances. If you have time, bring any late payments up to date and reduce card balances to help improve credit before applying for a loan.
5. Shop around for a loan. Compare loans from lenders you've identified. You can use prequalification tools to estimate your loan size and APR from each lender.
6. Apply for the loan. After choosing the best loan offer, submit a loan application. Both you and your cosigner will need to provide financial information to the lender and authorize a credit check.

Alternatives to Buying a Car With a Cosigner

It's not always possible to find a creditworthy friend or relative who's willing to cosign a car loan. But this strategy isn't your only option. You can still improve the chances of loan approval on your own by following these steps:

• Improve your credit score. The steps you can take to improve your credit score depend on your situation. You may, for instance, focus on paying your bills on time, paying down your revolving balances or only applying for credit when you absolutely need it.
• Boost your income. Finding ways to increase your income may help you qualify for the loan if your income doesn't meet the lender's minimum requirements. It can also help lower your DTI, which also improves your eligibility.
• Pay down your debt. Find the best debt payoff strategy that works for you, and tackle any debt that's preventing you from getting a car loan. This will help lower your DTI, increase your credit score and put more room in your budget for car loan payments.
• Save for your car's down payment. A rule of thumb says to use a 10% down payment on a used car and 20% on a new car. A larger down payment, if you can afford one, lowers your monthly payments and reduces your lender's risk.

If these options won't work for you, then you might consider an auto loan for bad credit borrowers. These loans often come with high borrowing costs. So if you open one, consider refinancing the auto loan if your financial standing improves.

Frequently Asked Questions

The Bottom Line

If your credit score is less than stellar, applying for a car loan with a cosigner can help you land a better loan than you might get on your own. Once you receive the loan, commit to making your payments on time so your cosigner doesn't have to step in. To see how on-time loan payments affect your credit, sign up for free credit monitoring from Experian to track your FICO^® Score^☉ and get important alerts to changes in your credit report.