When your credit history is less than stellar, you can still obtain a loan with the help of a co-signer, which is someone who agrees in writing to repay your debt if you are unable to. Sometimes, especially in the case of expensive car loans, you may be required to have a co-signer if your credit history is insufficient or poor. Knowing how co-signing affects both the buyer and the co-signer is essential to making a decision on obtaining a car loan.
What a Co-Signer Will Do
Having a co-signer wont affect your credit score one way or another. Instead, having someone co-sign on a car loan may help you obtain a better interest rate because the lender will factor in the co-signers credit history. If you are confident that you will be able to make regular payments on your car loan, having a co-signer to give you an extra boost in the beginning may be the key to bridging the gap between poor or nonexistent credit and good credit. In effect, having a co-signer may actually help increase your credit score in the long run.
Having a Co-Signer
While having a co-signer wont negatively affect your credit score, it has other risks. If youve been told by a potential lender that you need a co-signer, consider your other options. Needing a co-signer may be a signal that the loan is too expensive for you altogether, and it may be smarter to wait until you can afford the loan. Even if you do find someone to co-sign, your interest rates may be still be high and your payments unmanageable.
What Affects Credit Score
If you want to improve your credit score, knowing what does affect it may be helpful. According to the leading credit scoring company, FICO, what weighs the heaviest on your score is your payment history. If you make timely payments on all of your accounts and pay your required balances, your score will improve. Also, keeping your debt low, having a long credit history, opening new lines of credit and having different types of accounts will all boost your credit score.
Risks for a Co-Signer
Your co-signer takes a much bigger risk than you do when co-signing on your car loan. If you miss a car payment, your lender will expect your co-signer to pay it. Even if youve demonstrated good money management, you may still deal with hardships like losing your job or getting sick in which case your lender will also expect your co-signer to take on your debt. If your co-signer isnt able to back you up, his credit score will take the hit, and your relationship with the co-signer may suffer as well.
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