Thinking of co-signing an auto loan? Understand the co-signer checklist because it includes having an excellent credit score, a low debt-to-income ratio and the stability of job and income.
The decision to co-sign someone’s auto loan is always a tough decision. When an individual asks you to co-sign a vehicle, they are asking you to share the burden of the auto loan. Co-signing, in the simplest of words, means that you are jointly co-signing the loan agreement. You serve as a source of credit to someone who cannot qualify on the basis of their own credit score. However, your decision to co-sign an auto loan would become a lot easier if you understood the nitty-gritties of the process.
Before you co-sign an auto loan, it is essential to understand the requirements that will help you to qualify as a co-signer.
1) Excellent Credit Score
Your credit score is the most important thing that will get you to qualify as a co-signer. The lender is banking on your creditworthiness and your credit history. Usually, the range of credit scores for co-signers is 670 or above. However, your credit score may vary from one company to another. Therefore, your credit score and credit history need to be in good shape to become an auto loan co-signer. A good idea is to check your credit report for any fallacies and correct them before submitting the auto loan application.
2) Debt-to-Income Ratio
All your current monthly debt and expenses divided by your current monthly income will give you your debt-to-income ratio. It is a clear reflection of the amount of monthly payments that you can make easily. Your debt-to-income ratio should be less than 50%, i.e., your monthly loan payments and expenses should be around half of your current income. Debt-to-income ratio is a manifestation of your financial situation. It shows that you will have enough disposable income after qualifying as a co-signer for the auto loan. You will be able to repay the loan if the primary lender is unable to make regular payments.
3) Stable Employment & Income
The lender will look up your current employment status and your income. Payment stubs from the last three months and proof of working for the same company will reflect a positive perception in the mind of the lender. It is a wise idea to stay at your current job, in case you are planning to switch jobs. A stable income source is proof that you will make the payments and help the lender in ascertaining the risk involved. Therefore, make sure you show the correct proof while applying for the auto loan.
Be an Informed Co-Signer: Help those in Need
While you are ready to co-sign, understand all the auto loan terms in length before signing the contract. Co-sign only for people you know and trust. Also, search for a good auto lender and take help from all the online resources to make the most informed car buying decision.
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