The Benefits of a Cosigner for a Car Loan With Bad Credit

The Benefits of a Cosigner for a Car Loan With Bad Credit

If you are looking to purchase a car but experiencing difficulties securing credit, you might want to consider enlisting the help of a cosigner. A cosigner is an individual who is willing to apply for a loan with you and can potentially improve your chances of securing a loan. 

What Are the Benefits of a Cosigner?

Get Better Loan Terms

When you apply for a car loan with a cosigner, you may improve your chances of gaining approval and also qualify for lower interest rates and favourable loan terms. It is essential to consider your interest rate as it can be as low as the current prime rate or close to 50%, making a huge difference to your monthly payments. 

Improve Your Credit

When you are approved for a car finance loan with a cosigner, you have the opportunity to build your credit. This is particularly helpful for individuals without an established credit history or others who suffer from a bad credit score. When you establish a good credit score, you are more likely to qualify for future loans without the need for a cosigner and with more favourable loan terms. 

What Are the Rights and Responsibilities of a Cosigner?

Your cosigner does not have any ownership rights to your vehicle, and they cannot drive it without permission. They are simply helping you to qualify for a loan for the car, but they do share equal financial and legal responsibility with regard to the loan.

What Are the Potential Risks Of Cosigning a Loan

Your cosigner opens themselves up to financial risk if you do not repay the loan. Any late or missed payments will also negatively affect their credit score and affect their ability to apply for credit in future. 

Do I Need a Car Loan Cosigner?

It may be in your best interest to look for a cosigner if you fall into one or more of the following categories.

• Suffer from a poor credit score
• Have a short credit history
• Have recent gaps in your employment history
• Your employment history is limited
• You currently hold too much debt in relation to your income

Students and newcomers to Canada often struggle with one or more of these issues, making it difficult to apply for credit. A cosigner can help you get the car you need and establish your credit history, which is important when taking out future loans.

What Is the Process To Cosign a Car Loan?

Not all lenders accept an application with a cosigner, so talk to several financial institutions to find the ones that do.

• Make your pre-qualification application to find out the interest rates and the terms of your loan. It is a good idea to get several quotes so you can find the best terms.
• When you've decided on a lender, submit your loan application documents. Both you and your cosigner will have to submit the following documents.
• Proof of identification such as a passport, care card, permanent resident ID or driver's license
• Proof of income in the form of pay stubs, several months' worth of bank statements or a T4 slip
• Proof of residency, such as gas, electric or cellphone bills with your name and address listed

The lender will also perform a credit check on you and the cosigner to determine the level of risk of giving you a loan. Your risk level greatly influences your interest rate, with a high risk leading to you paying a higher interest rate.

At Insta Auto Solutions, we work with several lenders who accept cosigners on their loans. Feel free to contact us for more information.

Who Can Cosign My Loan?

When it comes to choosing a cosigner for a loan, most people typically choose a close friend or relative. For example, parents may cosign a loan with their adult children to help them qualify for a mortgage or an auto financing loan. Newcomers to Canada may ask relatives or friends who are already established in the country to cosign their loans. 

When deciding on a cosigner, it is best to choose someone who is financially stable and has a high credit score, as this will improve your chances of getting approved for a loan. You may also benefit from a lower interest rate and more favourable terms than if you applied on your own. 

Why Is It Important to Make Your Loan Payments on Time?

If you miss a loan payment, you will incur additional interest fees that grow over time. Missed or late payments will also damage your credit score.

Effects of Missed Payments on Your Cosigner

Your missed payments will also affect your cosigner's credit score, and they will be liable for late fees and collection costs. They will also face legal consequences if the debt is not paid. 

When you apply for any loan amount, it is important to assess your income and expenses to ensure you can repay your loan. We recommend that you don't buy the most expensive car on the lot but purchase a vehicle in your budget that makes it manageable to pay your bill on time. 

Use our car loan calculator to find out what you can afford. 

What If I Can't Find a Cosigner For a Loan?

Offer a Downpayment

If you are planning to get a loan without a cosigner, consider saving up for a downpayment. Offering a downpayment on loan is viewed positively by the lender and may help to secure a lower interest rate with more favourable terms. 

Apply For a Bad Credit Car Loan

You may qualify for a bad credit car loan without a cosigner. Bad credit auto loans are perfect for individuals who:

• Don't qualify for a loan from traditional lenders such as banks and credit unions
• Have a bad credit score or poor credit history
• Are a new resident of Canada
• Have recently declared bankruptcy
• Have no one to cosign a loan

Choosing a New Car

At Insta Auto Solutions, our inventory is stocked with a range of high-quality used vehicles. Our dealerships carry a selection of SUVs, pickup trucks, sedans, coupes and convertibles, so you can easily find a vehicle you'll love. 

If you are not sure what type of car you can afford or want to estimate your monthly payments, use our car loan calculator tool to find out. When figuring out your vehicle budget, don't forget to account for car insurance, gas and maintenance costs.

How To Apply For a Bad Credit Car Loan

We have a simple two-step approval process.

1. Submit your online application. It only takes a few minutes to complete, and we will only ask for the information we need. 
2. The good news is that applications are usually reviewed on the same day, so you won't have to wait too long to drive away in your new car!

How To Lower Your Costs On a Bad Credit Car Loan

You will likely get a high car loan interest rate with a bad credit car loan, so it's best to try and minimize your costs.

Shop Around for the Best Interest Rate

Shopping around may take a little more time and effort, but it will be worth it in the end. If you can secure an interest rate of 20% instead of 30%, you'll save a lot of money in the long run.

Always Pay Your Bills In Full and On Time

This is really important with a bad credit car loan. Firstly, you'll want to avoid the high interest or costs that come from missing and late payments. Secondly, if you are taking out a loan to improve your credit score, missed and late payments will damage it. 

Pay Down Your Debt Early

If your loan terms allow you the opportunity to make extra payments, it is worth doing so. If you receive a bonus from work, put that towards the cost of paying down your loan. Also, consider bi-weekly weekly payments to take advantage of two extra payments each year to pay down your loan more quickly.  

Get A Bad Credit Car Loan Without a Cosigner 

It's not always easy to get what you need, but if you are looking for a new car, we can certainly help. At Insta Auto Solutions, we are committed to helping you find a car that you love and that allows you to take care of yourself and your family. Get pre-approved for a loan today!