When you don’t have good credit or your passive income streams are lacking, getting financed for a car can be challenging, especially if you’re trying to apply by yourself. However, there may be some wiggle room in the balance between your credit report and loan agreement options — so 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 willing to step up. Applying for a joint car loan with another primary borrower’s credit alongside yours can make it more likely that a bank will accept your application.
Keep reading to learn more and find out if it might be the right financing solution to get you into the driver’s seat.
How a Joint Auto Loan Works
Unlike a personal loan, when you apply for a joint auto loan, you and your co-applicant are required to fill out a joint loan application. This means you and your co-borrower are both responsible for the debt, making payments on time and other loan term implications so make sure you are entering this with someone you trust.
Here are a few key takeaways:
- 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. Simply put, both of you are equally responsible for making loan payments and repaying the loan if the other cannot.
- This also means both co-borrowers have equal ownership rights to the vehicle and legally have equal access to drive the car.
- Since co-borrowers apply for the loan together, the lender considers the combined credit history, credit card debt, income, debt-to-income ratio (DTI) and more of you both.
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. It can be best for you if you are sharing your car with someone or you want to make it easier to qualify as two applicants can lower your DTI.
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.
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.
Here are a few more potential benefits:
- A co-borrower with good credit or a higher income may increase the chances of loan approval making it easier for you to qualify for the loan
- A strong combined credit history and income can lead to lower interest rates.
- A joining auto loan can potentially increase the amount of the loan available or buying power.
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.
Here are some other potential drawbacks:
- Both co-borrowers are responsible for the loan, even if one of them defaults on payments, making you responsible for the entire monthly payment if the other loanee absconds.
- Financial disagreements over payments or vehicle usage can strain relationships or even result in legal action being taken.
- Insurance costs may increase due to having two names on the title.
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 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.
Final Take To GO
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.
Michael Keenan contributed to the reporting for this article.