When someone applies for a car loan in Canada and receives less than favorable loan terms or even a loan rejection, that doesn’t always mean they can’t get into a quality vehicle. They can always turn to a co-signer to help secure the loan or get better terms.
Unfortunately, there can sometimes be a lack of clarity around co-signing, and what it means for the co-signer as well as the primary borrower. Below, we cover the ins and outs of being a co-signer and the pros and cons of co-signing for an auto loan.
What is a co-signer?
A co-signer is a person who signs onto a car loan with the main borrower. Generally, this person has a strong credit score or financial situation and is essentially vouching for the borrower.
In return, the co-signer is also taking equal financial responsibility for repaying the full amount of the car loan in the event that the primary borrower can’t or won’t.
What is a main borrower?
The main borrower (or primary borrower) is the person buying the vehicle and initially seeking financing- they will be the owner of the vehicle and they are the one who will be making the payments.
Why would someone need a co-signer?
You may need a co-signer if you don’t have credit, have poor credit, or if you already have significant debt. Lenders consider these factors risky and will be less likely to give you a loan, especially over a long term or at a low interest rate. Getting a co-signer can help you- with someone with good credit or a higher income vouching for you, lenders consider the loan less risky- and may offer you more favorable terms.
Your co-signer can be virtually anyone you know with a better financial situation- but they’ll typically be someone close to you like a family member, close friend or significant other.
What are the benefits of co-signing on a car loan?
Becoming a co-signer for someone that you trust to make their payments can be a great way to help a friend or family member get into a better financial situation, and it’s an excellent way to build and improve your own credit score without taking on additional bill for yourself.
It is however important to remember that co-signing carries the risk of negatively effecting your credit if the primary borrower doesn’t make their payments- a good rule of thumb is to only co-sign for someone that you would lend money to.
Get driving, even without a co-signer.
Even with less than perfect credit, you may not need a co-signer. VIDrives has a 99% approval rate for financing, and we offer excellent vehicle financing options for any credit situation. We work with 30+ lending partners and our financial specialists will take a look at your specific credit situation so we can present you with all of your options, and get you the best terms possible.
To find out if you’ll need a co-signer get pre-approved to get your no obligation financing options. It takes 2 minutes and won’t affect your credit- plus we can add your co-signer on later if necessary.