When a borrower's credit isn't quite strong enough to get approved on its own, bringing in another person can make the difference between driving a new (or new to you) car off the lot and walking home empty-handed. That's where cosigners and co-borrowers come in—both can help you qualify for financing. But once the loan is approved, the roles each person plays and what they're on the hook for look very different. Here's what you need to know about auto financing co-buyer vs cosigner rights.
Key Takeaways
- A co-borrower takes full responsibility for the loan and shares co-ownership.
- A cosigner is legally responsible if you don't pay, but they do not co-own the vehicle with you.
- To avoid misunderstandings or missed payments, make sure you get everything in writing when asking a cosigner or co-borrower to help you secure a loan.
A co-borrower (sometimes called a co-applicant) shares financial responsibility for making payments and shares ownership of the vehicle. When it comes time to sell the car, both you and a co-borrower have a say in that decision.
If you miss payments, both credit profiles take a hit. There's no dividing line between who benefits and who's responsible. This arrangement makes the most sense when two people purchase a car together. Couples buying a car jointly, or a parent and adult child splitting both the cost and use of the vehicle, are the most common examples.
What Does a Cosigner Agree To?
A cosigner takes on a loan for one reason—to help you (the borrower) get approved. They use their stronger credit profile to back your loan, but never share vehicle ownership. The car belongs solely to you. The payments are theirs as much as they're yours, and if something goes wrong, they also become responsible. If you pay late or miss payments, everyone's credit is affected just the same.
If you have limited or damaged credit, a cosigner can improve your approval chances, and you may get better loan terms, but cosigning is nonetheless a real risk for the person helping you.
Before a co-borrower or cosigner puts their name on anything, there should be an understanding of how you'll handle the loan, so no one gets burned. If neither party is clear on details from the get-go, both credit scores can take a hit. This shared financial obligation will follow both the borrower and the other involved person for years. Putting these expectations in writing provides a roadmap for you and whoever's helping you. Detail who pays what, when they pay it, and how to handle a missed payment if it arises.
Is Lending a Helping Hand Wise?
Co-borrowing and cosigning only work when both parties go in with a full understanding of what they agreed to. If you have questions about how either arrangement works, our team is happy to talk it through with you. Stop by and see our financial team today!