First Time Auto Loans – Will You Need a Cosigner?
There are several key factors to first time auto loans and what type of approval you can expect to get. One of these factors is a cosigner and whether or not you’ll need one. Many dealerships that do not specialize in these types and other types of non-prime loans typically skip right to the “you’ll need a cosigner” conclusion, when in fact it is possible to get approved on your own.
Let’s take a look at how a cosigner can help and what it takes to go it alone…
A cosigner is typically the most effective in situations where the buyer has either very limited positive credit with no negative credit at all and/or when the buyer has zero credit whatsoever. This usually applies to customers in the 18-25 year old range and when applying to a credit union.
Under the right circumstances and with the right cosigner these buyers will benefit from using less money down (possibly zero), better finance rates (many times at prime rates), longer finance terms (to keep payments down) and can borrow more money to buy that sweet ride you’ve had your eye on.
In a situation where the buyer has mostly bad credit (collection accounts, chargeoffs, slow paid credit cards, etc.) a cosigner may not help much. Even with a well qualified, 800 credit score, solid as a brick cosigner, it will not mean that you will automatically qualify for the no money down, 0% APR with 7 year financing plan.
In fact, the worse your credit the greater the chance that a cosigner, no matter how strong their credit, will have zero impact on your approval. It would probably be more beneficial for them to just buy the car for you. Unfortunately, not many lenders allow that.
Typically in these types of situations a cosigner is added to the deal to add more stability, by having more provable income associated with the deal, or some other factor not associated with simply their credit rating.
What if you don’t have a cosigner no matter what your credit situation?
Don’t worry! You can still get approved. There are lenders out there that actually guarantee credit approval no matter how limited or how bad your credit is. They will approve you. But, what does it take to put a deal together with one of these approvals?
To help yourself get the best approval on your own is to come to the table with some commitment. What’s commitment to a lender? Money down! The more the better. Sure, you may be able to put no money down (or very little), but a larger down payment will help you to:
1) Get approved with a better lender
2) Get a better finance rate
3) Have a better selection of vehicles to choose from
Money down reduces a lenders risk and to some degree commits you to the vehicle. A buyer is less likely to walk away from a vehicle they have $3,000 invested in versus one they have only $300 invested in. Therefore, better terms for you.
Most first time auto loans are approved in the $8,000-$12,000 range, but don’t borrow the full amount just to borrow the full amount as the terms of your loan may be somewhat unfavorable with your first loan. Keep in mind the vehicle you buy this time is helping to build your credit foundation for the future. Don’t get in over your head! Buy a vehicle that gets the job done and that you can easily afford. The next time around you can buy your dream car once you are no longer a first time buyer and the terms of your loan will be much more user friendly.