Whose Credit Score Is Used When Buying a Car With a Co-Signer?

Generally, lenders will consider the credit score of all applicants applying for a loan. Different lenders use different methods for assessing the creditworthiness of borrowers. If you’re seeking a loan, it’s important to know how each lender assesses you for approval—especially if you’re attempting to make a big purchase, such as a car.

If you’re a young adult who is a first-time car buyer, you should know the basics of how co-signing works. Indiana Members Credit Union provides a variety of resources to supplement financial education for youth, including our SmartStart Program. And with this article, we’re going to cover some frequently asked questions about co-signers, including what they are and how they affect your chances of getting approved for a loan.

What Is a Co-Signer?

A co-signer is someone who applies for a loan alongside you, essentially telling the lender “if this person cannot pay the loan for whatever reason, I will pay it.” Co-signers are agreeing to legal responsibility for the loan if you cannot pay it back. From the lender’s perspective, this reduces the risk of the loan, which not only helps with approval but makes it more likely that you will receive a better interest rate.

Is a Joint Auto Loan the Same as a Co-Signer?

No; while similar, the difference is in who is responsible for making payments—and when. In a joint auto loan, two borrowers are equally responsible for paying back the loan, and each of them must make regular, separate but equal payments. A co-signer, on the other hand, acts as a “backup plan” for the lender getting paid back. Co-signers are only expected to pay back the loan if the borrower cannot. Additionally, a joint auto loan is typically for people who are going to split ownership of a car, whereas co-signers are simply helping someone else purchase a car; co-signers do not usually retain ownership.

Is It Easy To Get Approved for a Car With a Co-Signer?

It’s definitely easier—especially if you don’t have a credit history or are just now starting to establish one. While having a co-signer does not guarantee you will be approved, if they have a high credit score and good credit history, lenders are far more likely to trust you as a borrower. If you have questions about what kind of co-signer will help you, talking with an auto advisor like the ones at IMCU can help immensely.

If I Have a Co-Signer, Will I Still Build Credit?

Yes—you definitely will! Co-signers are only there to show lenders that you have a safety net if you’re unable to pay back the loan. You are still the one making the car payments, which means you will be the one building credit.

Does Co-Signing for Someone Affect Your Credit Score?

Yes, it can—but only in certain cases. According to Equifax, when you co-sign for a loan, it is included in your credit history and is incorporated into your debt-to-income ratio. Keep in mind, though, if you co-sign for someone and they are making timely payments on the debt, there is a lot less to worry about. Co-signing is very common amongst parents for a reason: it yields little risk, in most cases. It may limit your total borrowing power temporarily, but otherwise should have no negative impacts to your credit.

How Much Does a Co-Signer Help on Auto Loans?

As a first-time borrower for a car, a good co-signer—one with a good credit score and good credit history—can be huge when purchasing your first car. Here are some potential benefits of a co-signer:

  • Lenders will offer lower interest rates, which decreases how much you pay total for the car
  • The ability to take out a larger loan and make larger purchases
  • Grounds for negotiating even lower interest rates—especially with regular timely payments

Does Having a Co-Signer Help Your Car Payment?

Having a co-signer with a good credit score and good credit history helps you get a lower car payment and pay less overall for your car. This is because co-signers make it more likely that a lender will give you a lower interest rate, which means you will pay less on a loan in the long term.

Can You Still Be Denied a Loan With a Co-Signer?

You can still be denied, but only in rare circumstances, most of which will likely not apply to a first-time borrower. A borrower with a poor credit history or negative financial situations, such as bankruptcies or repossessions, will have a harder time getting approved for a loan—even with a good co-signer. Conversely, if a co-signer has a lower credit score than you or has a poor credit history, they will hurt your chances instead of helping them.

What Is the Minimum Credit Score for an Auto Loan With a Co-Signer?

There is no minimum credit score for auto loans, or loans of any kind. Lenders have different criteria for the types of loans they offer, and there are even subprime lenders for borrowers with poor credit. That said, having a better credit score means you will get better interest rates, and ultimately pay less money overall. Generally speaking, a score of 600 is a good credit score to aim for when buying a car.

Keep in mind, though, there is a difference between “bad credit” and “no credit”—the difference being credit history. Having no credit does not mean you will fail to procure a loan. With the help of a co-signer and even some auto advisory services, you can find auto loans at good interest rates to help finance your first car. You can even find small starter credit cards—like IMCU’s Jumpstart credit card—to help build your credit in a low-risk environment. ​​

Buying Your First Car? IMCU Can Help

If you’re looking into buying your first car, Indiana Members Credit Union has a lot of resources to help you. With IMCU, you can learn the basics of finance through our SmartStart Program, build credit through our Jumpstart credit card for beginners, and even get a pre-approved car loan to make buying your first car that much easier. Please visit our website to learn more about the ways we can help you!