Can a Friend Cosign on a Car Loan?

Benefits of Using a Cosigner

Without a cosigner, your auto loan application might be declined. If approved, you might pay a high interest rate, shorter loan term or have to provide a large down payment. These loan restrictions reduce lender risk by expediting vehicle equity. High interest rates and shorter loan terms often result in a high monthly payment. Using your friend as a cosigner might result in more lenient loan terms, allowing you to choose a higher priced vehicle for an affordable payment based on interest rate, longer loan term and less of a down payment requirement.

Disadvantages of Having a Friend Cosign Your Loan

Friendships can change at any time. If you and your friend argue or decide not to remain friends any longer, she still remains as the vehicle’s co-owner. You can’t sell or trade in your vehicle in the future without your friend’s permission. Even if you decide to refinance the loan, your friend has to agree to release her portion of ownership. You can’t simply remove someone from an auto loan. If you plan to sell your car or trade it in the future, you’ll have to work with your friend to complete the process.

Loan Process

To determine if your friend is an ideal cosigner, apply for a car loan pre-approval. Search new or used car interest rates to decide where to submit an application. Even if you don’t have good credit yourself, shop for good rates, because your cosigner might qualify. Discuss your budget with a bank representative to determine how much of a loan you can afford. Once you find an ideal lender, both you and your friend must provide your credit information. Pre-approvals can take up to one week, so apply for your pre-approval before you go car shopping.

Understanding Responsibility

Using a friend as a cosigner might cause trouble in your relationship if you don’t make payments on time. Your entire loan account, including amount borrowed and payment history, is reported on your friend’s credit report. If you don’t make your payments, your friend’s credit score will drop, increasing his own interest rates and affecting his chance of future loan approvals. Cosigning the loan also decreases your friend’s debt-to-income ratio, as your loan payment becomes part of your cosigner’s debt responsibility. Explore the affects of cosigning a loan with your friend to determine if the option is best for both of you.

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