What does a co-signer do for a car loan?
Very few people are going to be able to come up with several thousand dollars to buy a car, truck or SUV. Most Carizma Motors customers are not only coming to our dealership with the goal of buying a new (to them) vehicle but also looking for the most affordable financing options available to them. One of the ways someone with a low credit score can find a loan is to have another person with a higher credit profile act as a co-signer. So, what does a co-signer do for a car loan? A co-signer isn’t a character reference. Someone acting in this role is essentially promising to take over the payments if the primary borrower falls behind on the load. Let’s take a closer look at a few other helpful pieces of information.
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Risks Faced by a Loan Co-Signer
As we said earlier, the co-signer of any loan is going to be viewed as just as responsible for making payments as the primary borrower on the loan. However, the co-signing party will only be required to make payments if the primary borrow falls behind. Agreeing to co-sign a loan requires a lot of trust and a lot or relationships have been damaged by the primary borrow defaulting on their payments.
The co-signer’s credit profile could be damaged if the primary borrow misses a payment, and the very act of having a hard pull done on the co-signer’s credit could negatively affect their score – mostly because of the increase in debt-to-income ratio. Additionally, if the primary borrow does fall behind on loan payments, the co-signer will be responsible for paying for late fees and collections fees, as well as the regular payments.
On the other side of the equation, a co-signer could see their credit score improve if everything goes smoothly and the primary borrow makes all of their payments on time.
What should a co-signer do if a borrow gets in trouble?
People experience bad luck all the time. If the primary borrow knows some financial difficulties are coming, they should speak with the co-signer immediately. Just like any other loan situation, a co-signer and primary borrow should reach out to the holder of the loan right away and try to work something out. Things will get bad very quickly if both parties try to hide from trouble.
If you have any questions about the automotive lending process, make an appointment with a Carizma Motors financial expert today.