Anyone who has tried getting a car loan knows it can be challenging. When starting, your credit history may not be long enough for lenders to approve your loan. And if you don’t have good credit, saving up for an expensive vehicle purchase like a car becomes even harder. That’s where cosigning comes in.
What Is Cosigning?
Cosigning is a way to help someone get a loan. It’s not the same as being a guarantor, meaning you are responsible for paying back the loan if they don’t. When you cosign, you say that if this person does not pay back their debt, you will take over their obligation and make monthly payments on time until it is paid in full.
If your friend or family member cannot afford monthly payments any longer, they must find another way to pay off their debts before they go into default status with creditors. This means they can’t take out any new loans until those old debts are paid off first.
What Does a Cosigner Do for a Car Loan?
When you cosign a car loan, you agree to pay the loan payments if the primary borrower fails to do so. A cosigner is essentially a co-borrower often used by young drivers who can’t get approved for bad credit car loans Alberta.
The benefits of cosigning a car loan are that the primary borrower gets approved even if they don’t have credit or income history. This can help them get a better deal on car or truck purchases. The cosigner gets some protection from the lender if the primary borrower stops paying.
How Can a Cosigner Be Removed From a Loan?
It’s not easy to get a cosigner removed from a loan. The best way to remove a cosigner is to pay off the entire loan, meaning you must pay off the balance owed. This can be a lot of money, and it’s usually impossible for someone who doesn’t have a steady income or assets.
Your other option is to find someone to take over the loan if you can’t pay it off. This person would need to come up with enough money to pay off the debt owed on top of their monthly payments.
In either case, this can take months or years of work on your part and often requires legal help as well.
How Is a Cosigner’s Credit Affected?
The cosigner’s credit will not be affected unless they decide to take out another loan or make a large purchase. If that happens, the lender will check their credit report and see they have a cosigned loan. However, if the cosigner has good credit, it will not affect their score.
A cosigner’s credit could only be affected if they fail to make timely payments. In that case, the lender would report it as a late payment on the cosigner’s credit report, which could lower their score.
Can Cosigning Improve Your Credit?
You may have heard that cosigning a car loan can help you build your credit. This is true, but it’s essential to know that cosigning a loan does not improve your credit score by itself. The bank will report the new loan with both names as part of their process for approving the loan and reporting it to the credit bureaus.
With all the information on cosigning a car loan Calgary, it can be hard to know where to start. The best advice we can give is this. If you consider cosigning for someone else’s car loan, ensure that the person has good credit and income. If they don’t, or even if they do, wait until they have saved enough money before making an offer on their behalf.