Using a Cosigner on an Auto Loan

Under many circumstances a co-signer will help you to obtain a car loan, but a co-signer is not necessarily required. Lenders will consider the credit reports, income, assets, debts and other information of both parties. A cosigner can be a family member or a friend with good credit.

Beware Of The Straw Purchase. A straw purchase usually refers to handgun sales. When one person buys a handgun for a person who is ineligible to own one, it's called a straw purchase and carries stiff penalties. That's how the Columbine High School students got their guns.

With car buying, the dealer tells you that you can't qualify for the loan so you need to get a co-signer, plus they tell you that it will help build your credit. No problem, Grandma will do it for you. But the dealer easily dupes Grandma and two weeks later you find out that the dealer did not process a co-sign loan, they made the entire loan in Grandma's name! This does not help your credit. Her name is on the title and it's illegal for you to buy insurance on a car that is not titled to you.

To avoid this scam have both signers there at the same time, also, your contract should have both signatures on the same contract. Never sign separate contracts. The Federal Trade Commission's Trade Regulation Rule on Credit Practices requires a notice to the cosigner. The cosigner should ask for a copy of that after they sign it.