How does co-signing a car affect credit? Part Of Financing a Car With a Co-Signer In this series Financing a Car With a Co-Signer Advertiser Disclosure Advertiser Disclosure We are an independent, advertising-supported comparison service. Our mission is to help you make smarter financial decisions by providing you with interactive tools and financial calculators as well as publishing unique and impartial content, by enabling you to conduct research and compare data for free and help you make informed financial decisions. Bankrate has partnerships with issuers including, but not limited to American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Make Money The deals that are displayed on this site come from companies who pay us. This compensation could affect how and where products appear on the site, such as, for example, the order in which they may be displayed within the listing categories in the event that they are not permitted by law for our mortgage, home equity, and other home lending products. But this compensation does have no impact on the information we publish, or the reviews appear on this website. We do not include the entire universe of businesses or financial deals that might be available to you. SHARE: Jupiterimages/Getty Images
3 min read published September 20, 2022
Written by Mia Taylor Written by Contributing Writer Mia Taylor is a contributor to Bankrate and an award-winning journalist who has two decades of experience and worked as a staff reporter or contributor for some of the nation’s leading newspapers and websites including The Atlanta Journal-Constitution, the San Diego Union-Tribune, TheStreet, MSN and Credit.com. Written by Rhys Subitch Edited by Auto loans editor Rhys has been writing and editing for Bankrate since the beginning of 2021. They are passionate about helping readers feel confident to take control of their finances through providing concise, well-researched and well-researched content that dissects complicated topics into bite-sized pieces. The Bankrate promises
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Co-signing a loan can hurt your credit. Late payments and default will negatively impact your credit, as well as the primary borrower’s. Your score could also fall by a few points since the initial credit assessment.
What happens when co-signing an auto loan affects the co-signer’s credit If you co-sign a car loan, your credit could be affected a bit by the inquiry made during the application process. There could be an increase on your score since the average age of accounts will decline. But, your credit can improve when timely payments are made on the loan since it will add positive payment history to the credit report. However, if the principal borrower is unable to pay and the co-signer fails to fill in the gaps the credit score of the co-signer will suffer. Furthermore, you could have and credit cards in the near future. After the loan is 30 days past due date, it could be reported to the lender to the three major credit bureausincluding Experian, TransUnion and Equifax and will affect the credit rating of your. If the loan remains delinquent and co-signers are involved, their credit score will take a bigger impact. The unfortunate thing is that repossessions and late payments will remain on your credit report for as long as seven years, however the impact decreases over time. How having the auto loan co-signer affects the primary borrower’s credit Were you refused an auto loan due to a lack of credit history? Getting a co-signer with stellar credit is likely to increase your odds of approval because the lender will be less liable. Consequently, you could get accepted for the auto loan and start building good credit when you make timely payments on the loan. A co-signer can also help you when your score is lower due to financial mishaps. The amount of your payment history is the 35 per cent of credit scores therefore, keeping up with the auto loan payments throughout the loan term could help boost your score — assuming you handle all your other debts in a responsible manner. When to be co-signer for a car loan Co-signing a car loan can be risky and damage your credit health when it’s not properly managed. However, there are instances where co-signing a loan is logical: Your relative or friend has a good employment record with a steady income, and you’re certain that they will make timely loan payments. Your child has any credit history, and you’d like to assist them establish credit from scratch. You are able to afford your monthly payments if the primary borrower falls behind. The best time to get co-signers on a car loan A co-signer can assist you in getting approved for the car loan with a favorable interest rate. This is the time to bring an individual or a relative on board: You earn an income that is steady and you are able to afford the monthly loan payment, insurance , and the maintenance costs that come with the vehicle. You always pay your bills on time and have money stored in case of financial emergency. You can’t get approved for an auto loan due to an absence of credit history or previous errors. The bottom line Whether you’re contemplating co-signing for the car loan and/or asking someone else to co-sign on your behalf, you should consider the risk before taking the next step. There are many important aspects to be aware of. Both arrangements can mean bad news for your credit score and overall finances if financial hardship arises or if loan payments aren’t paid in time. Furthermore, important relationships could be damaged, which could easily make the costs of co-signing an auto loan or having co-signers outweigh the benefits.
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Written by Contributing Writer Mia Taylor is a contributor to Bankrate and an award-winning journalist who has two decades of experience and worked as a staff reporter or contributor for some of the nation’s leading newspapers and websites including The Atlanta Journal-Constitution, the San Diego Union-Tribune, TheStreet, MSN and Credit.com. Written by Rhys Subitch Edited by Auto loans editor Rhys has been writing and editing for Bankrate from late 2021. They are passionate about helping readers gain the confidence to manage their finances with precise, well-studied information that breaks down complicated topics into manageable bites.
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