When you cosign for a bad credit auto loan you may be helping a friend or relative but you could also be asking for trouble
Loans and cosigners
At AutoNet Financial, we specialize in matching up bad credit auto loan consumers with dealers that can help them reestablish their credit by getting them approved for a bad credit car loan. At the same time, we want these consumers and their friends and families to be aware of the general rules involved in borrowing money.
In many loan situations, especially for first-time borrowers, a cosigner is the only way a lender will approve them for a loan. The reason for this is that many of these consumers have what is known as a “thin” credit file, due to the fact that there just isn’t much information to include in their credit history. Because of this, the lender will require that the borrower find someone with a longer, positive credit history to cosign the loan and guarantee that the loan will be repaid.
What the lender does is look at the cosigner’s credit history and it uses that history to satisfy the loan requirements when they make a borrowing decision. Since the borrower is also listed on the loan, the payment history will also be recorded on their credit report.
As a result, if the payment history is positive, the borrower now has a positive credit history. The cosigner, meanwhile, also has additional positive credit history. The key word here, if you haven’t noticed, is the word “favorable”. The other side of the coin is the real possibility that if the borrower had any problems repaying the loan, then it would result in a negative impact on the credit scores of both the primary borrower as well as the cosigner.
Cosigning a loan
When you cosign for any kind of loan, you are jointly signing the loan as well as assuming the debt. You are also guaranteeing that the borrower won’t default on the payment. This is all well and good if the borrower makes all the payments on time, but if payments are late or missed, you are equally responsible for repayment and, if things go badly, you could find yourself on the receiving end of everything from collection calls to an order of garnishment.
Loans and divorce
Another aspect of cosigning for a loan is the matter of divorce. Lenders will treat any loan agreement that was made prior to a divorce as an instrument executed outside of the divorce decree. This means that if you and your significant other both sign for a loan and then get a divorce, the lender will hold you both responsible, individually and jointly, for the cosigned loan, even though the divorce decree might assign the loan debt to just one of you. This means that if the husband was assigned responsibility for the loan in the divorce decree and he stops making payments on the loan, the wife is still responsible for making the payments, otherwise her FICO score could also be negatively impacted and she, as well, would be subject to collection actions.
Think before you sign
Here at AutoNet Financial, we want your bad credit auto loan to help your credit. If you have a friend, relative or significant other who needs you to cosign for a bad credit car loan, be aware of what you are doing and how it will affect your credit.
For more information on subprime auto loans, visit our web site at: www.autonetfinancial.com.
