Contrary to popular belief, it is indeed possible to cosign on a second car loan when you already have car finance. There are several reasons why you may wish to do so – one of which being to potentially boost your credit score.
Nevertheless, it’s important to remember that there could be negative consequences for you and your credit report if things go south. Hence, you need to ensure you only ever cosign on any car loan of any kind, if you have 100% confidence in the primary borrower.
Cosigning for a car loan
The practice of cosigning loan agreements is nothing new. If anything, it’s becoming a more popular option than ever before for low-credit consumers. By getting someone in a decent financial position to cosign, you boost the credibility of the loan application and have a stronger chance of being accepted.
If it’s you that’s considering cosigning, you’ll first need to ensure you meet the requirements of the lender. More often than not, this typically means having an adequate credit score and a reliable source of income. Just as long as you can provide evidence of your current financial position, you should be eligible for cosigning with most lenders.
With your signature added to the document, you officially become part of the loan agreement and your credit score is adjusted accordingly. If everything goes well, the agreement will improve your credit score. Nevertheless, it’s important to remember that even though you aren’t the actual buyer of the vehicle, you are just as responsible as the primary applicant if they fail to meet their repayment obligations.
Roughly translated, any mistakes or oversights on their part could have a negative impact on your credit score. Not just this, but if the primary applicant misses any payments or stops paying entirely, the lender will chase you for payment. In the instance that neither you nor the primary borrower can (or is willing to) pay money owed, one or both of you could be in line for repossession proceedings.
Needless to say, this kind of eventuality could wreak havoc with your credit score. Once again, this underlines the importance of only ever cosigning when you have 100% confidence in the primary borrower. If you’ve any doubt whatsoever, it’s a risk not worth taking.
Applying with a cosigner
Viewed from the opposite perspective, cosigners can be a godsend for prospective borrowers who don’t have the best credit scores. If you find yourself in a position where you can comfortably afford car finance but your credit score isn’t up to scratch, there’s a strong chance you’ll be rejected. In which case, you could ask for a second party to cosign – one with a better credit score than yours.
This way, you’re far more likely to be accepted by the lender. In addition, keep up with your repayments and your credit score will thank you. Nevertheless, it’s irresponsible to ask anyone to cosign your loan agreement, if you have any doubt at all as to your capacity to repay the loan.
Remember that if things go wrong, it’s their neck on the line – not just yours!
The bottom line
On both sides of the equation, cosigning can be a fantastic way of accessing affordable car finance and improving your credit score. That said, there are potential consequences that should be considered by both parties.
It’s also worth remembering that if poor credit is standing in your way, you could always apply for bad credit car finance with a specialist lender. If you’d prefer not to involve a cosigner or you simply don’t have one available, bad credit car finance could be the way to go.