If your current vehicle is on its last legs but you have some recent hits to your credit and aren't sure you can qualify for an auto loan, you may be wondering if you have any options short of taking out a high-interest loan from a buy-here-pay-here dealership. Fortunately, there are several options available that can get you into a new vehicle without costing you an arm and a leg in interest payments, including having a credit-worthy friend, spouse, or family member cosign for your new auto. Read on to learn more about some of the advantages and disadvantages of getting an auto loan with a cosigner, as well as some of your other options when it comes to getting a loan for your next vehicle.
What should you consider before taking out an auto loan with a cosigner?
For those whose own credit has some dents and dings but who have a parent, grandparent, spouse, adult sibling, or friend willing to cosign an auto loan, low interest rates may be achievable. By cosigning, the other person takes on joint legal liability for this debt — meaning if you stop paying on the loan, the bank has the right to go after your cosigner for payment, even if you're listed as the principal borrower. This means you'll need to carefully evaluate the affordability of your potential auto loan, as the cosigner will be risking his or her good credit to vouch for your ability to pay, and you'll want to avoid causing him or her to regret this decision.
You'll also want to make sure having a cosigner will lower your interest rate enough to make it worthwhile. In most cases, even those with poor credit will qualify for some type of loan (albeit perhaps one with a high interest rate), so having a cosigner with good credit should be enough to lower your interest rate to close to where it would be if you had perfect credit yourself.
What are some other options when it comes to financing your next vehicle?
If cosigning isn't an option, you may want to consider a cash-out refinance of your home. This is usually accomplished even with bad credit (as long as you have some equity in your home) and mortgage interest rates are still low enough that it's likely you'll be able to reduce your interest rate so that your payment remains unchanged. You'll then have some cash in your pocket to help your negotiating abilities.Share