To buy a car with a cosigner, the cosigner typically needs a credit score of 670 or more. While specific requirements can vary by lender, this score range is generally considered good and improves the chances of loan approval and favorable terms.
Understanding Cosigner Credit Requirements
When applying for an auto loan with a cosigner, lenders evaluate both the primary borrower's and the cosigner's financial profiles. The cosigner's strong credit history and financial stability are crucial, especially if the primary applicant has limited or poor credit.
Key Factors Lenders Consider
- Credit Score: As mentioned, a cosigner generally needs a credit score of 670 or higher. This indicates a low risk to lenders. A higher score can lead to better interest rates and loan terms.
- Debt-to-Income (DTI) Ratio: Beyond the credit score, lenders also calculate the cosigner's debt-to-income ratio. This ratio measures how much of their gross monthly income goes towards paying debts. A lower DTI ratio (typically below 36-43%) is preferred, as it shows the cosigner has enough income to manage existing debts plus the new car loan payments if needed. You can learn more about DTI from financial resources like the Consumer Financial Protection Bureau.
- Payment History: A cosigner with a history of on-time payments demonstrates reliability.
- Income Stability: Lenders look for steady employment and sufficient income to cover the loan obligations.
Why a Cosigner Helps
A cosigner essentially co-signs the loan, agreeing to be legally responsible for the debt if the primary borrower fails to make payments. This can significantly benefit the primary borrower by:
- Improving Approval Chances: For individuals with low credit scores, no credit history, or high debt, a cosigner with good credit can make the difference between approval and denial.
- Securing Better Loan Terms: A cosigner's strong credit profile can help qualify for lower interest rates, reducing the overall cost of the car loan.
- Building Credit: For the primary borrower, making timely payments on a co-signed loan can help establish or improve their own credit history over time.
Who Benefits from a Cosigner?
- First-time car buyers: Often have little to no credit history.
- Young adults: May not have had time to build a solid credit profile.
- Individuals with poor credit: A cosigner can provide the necessary boost for approval.
- Those with high debt: A cosigner can help mitigate concerns about the primary borrower's existing financial obligations.
In summary, while there isn't one universal "exact" score, a credit score of 670 or more is a strong benchmark for a cosigner to help secure an auto loan.
