What Is a Joint Auto Loan?

Learn why people use joint loans for car financing.

When your credit isn’t that great or income is lacking, getting financed for a car can be a challenge — especially if you’re trying to apply by yourself. But don’t give up just yet. You can improve your odds of getting your car loan approved if you have a creditworthy friend or family member who is willing to step up.

Applying for a joint auto loan with another borrower can make it more likely that a bank will accept your application. Find out what a join auto loan is, what the pros and cons of a joint auto loan, and see if it might be the right financing solution to get you into the driver’s seat.

How a Joint Auto Loan Works

When you apply for a joint auto loan, you and your co-applicant are required to fill out a joint application. The lender reviews your combined income and each individual’s credit history to determine loan approval and an interest rate. Once the loan is approved, the car has joint ownership, meaning both of you are listed on the title and share equal financial responsibility.

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Why Apply for a Joint Auto Loan

To be approved for an auto loan, you have to meet certain lender income and credit history requirements. Here are some reasons why you should apply for a joint auto loan:

  • The lender won’t approve you for a loan because of your credit history.
  • You can get a better interest rate if you apply with someone who has better credit.
  • You don’t make enough income to qualify for the loan.

Related: 12 Best Credit Unions for Car Loans

Pros and Cons of a Joint Auto Loan

Although a joint applicant can help you qualify for a car loan, there’s another big pro. Because incomes and credit scores from both you and your borrower are used to judge how much you can afford to borrow, you might qualify for a larger loan — which could help you get into a better vehicle.

The downside to being a co-borrower on a joint loan is when you’re listed on the title, you can be held liable for damages as an owner of the car. For example, if you co-borrow with your nephew who has a wreck in the vehicle and causes damages, you can be held responsible because of your stake in the car’s ownership. If you ask someone to be a co-borrower for you and you end up defaulting on the loan, it could hurt both your credit scores and your relationship.

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Alternatives to a Joint Auto Loan

When you’re in the market for car ownership, and lack of income isn’t an issue, consider finding someone who is comfortable cosigning a loan instead of co-borrowing. A cosigner for a car is someone who has the income and credit history to assume the loan if you fail to make your payments.

Like a co-owner, a cosigner is held financially responsible for the car — but only if you don’t make the payments. Additionally, a cosigner’s rights are different from those of a co-owner because he has no ownership of the vehicle and is not named on the title or insurance policy. And if the car is involved in an accident that causes damage, you, not the cosigner, are liable for the damage.

Up Next: 30 Biggest Do’s and Don’ts When Buying a Car

Sometimes, a joint auto loan makes sense if you can’t qualify on your own or if you and your spouse are buying a car together. But before signing on the dotted line with anyone else, make sure that you both understand your financial responsibilities to avoid confusion down the road.

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About the Author

Michael Keenan

Michael Keenan is a writer based in the Kansas City area, specializing in personal finance, taxation, and business topics. He has been writing since 2009 and has been published by Quicken, TurboTax and The Motley Fool.

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