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Why would I need a co-signer for an auto loan?

Adding a co-signer to your auto loan reassures a lender you can repay the loan, which can increase the likelihood that they’ll approve your application or provide a better interest rate.

A co-signer is a person – such as a parent, family member, or a friend – who adds their information, including income and credit record, to the loan application and pledges to pay back the loan if you’re unable to. A co-signer with a good credit history, for example, can increase the likelihood that you qualify for a loan or get better loan terms, including a lower interest rate.

What co-signers need to know

If you’re asking a family member or close friend to co-sign your loan, be aware that there are risks for them. For example, if you’re unable to make your car payments, your co-signer is responsible for repaying the loan, even if they’ve never driven your vehicle. In addition, if you pay late or default on the loan, both your credit and your co-signer’s credit could be negatively affected.

What lenders can and can’t do

A lender might tell you they can provide you a loan only if you have a co-signer. However, they can’t require you to have a co-signer if you qualify on your own.

If you’re told you need a co-signer, it generally means the lender will not offer you the loan based solely on your own income and credit record. However, ask whether you would be approved on your own, and, if so, what the terms of that loan would be before making the decision to include a co-signer. They also can’t require your spouse to be a co-signer unless you’re both applying for the loan.

Before signing the loan contract, make sure you fully understand and feel comfortable with the loan terms and details. If you’re feeling uncomfortable or forced to sign, you should walk away.

If you experience an issue with a financial institution, you can submit a complaint with the CFPB.

Know before you shop

There are several important financial decisions to make before you shop for a car. Learn what questions to ask so you can make the best choice for you.

What you need to know before you shop for a car or auto loan