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Can You Add a Cosigner When Refinancing a Car?

new cars in parking lot
Refinancing a Car with a CosignerImage Source - Getty Images

You might be considering refinancing your car to add a cosigner to your auto loan. But can you add a cosigner when refinancing a car? The simple answer is yes, it's possible to add a cosigner to your car loan when refinancing. However, this might not always be the best option. You'll need to think about why you want to add another borrower to your loan and whether it will increase or decrease your monthly payments.

Additionally, the bank will decide whether the person you want to add to the loan is someone they want to lend money to. They may deny you a refinance loan if the other party is a high-risk borrower. A lender will look at the credit scores, payment histories, and debt-to-income ratios of both people whose names will appear on the new loan. Your lender will calculate your monthly payment based on information from everyone who signs the loan agreement when determining eligibility.

Thinking of refinancing? Easily compare rates from auto lenders below

What Is a Cosigner?

A cosigner is another borrower who takes responsibility for the loan payments on the asset you purchase. When refinancing a car loan, you can add another person to the agreement. By cosigning your car loan, this person agrees to make the payments on the vehicle if you fail to do so for any reason. The cosigner will have to take full responsibility if anything happens to you that makes you unable to pay the agreed-upon amount each month, such as losing your job or sustaining an injury that prevents you from earning an income.

It's important to consider a person carefully before having them cosign your loan. They should be someone you trust who is responsible with a steady employment history. Ensure they understand their responsibilities as a cosigner clearly so there aren't any misunderstandings if something happens to you. Bankrate explains that a cosigner doesn't have rights to the vehicle even though their name is on the loan, so they need to know they are responsible for the debt but may not enjoy the property they are protecting.

Does a Cosigner Help with a Car Loan?

If you have a low credit score or struggled to make your car payments in the past, it can be difficult to get an auto loan. Obtaining a loan for a high-end vehicle, such as a Lexus or a Mercedes-Benz, may also be hard. And, if you already have a car loan, getting a second car loan isn't always easy.

Raising your credit score by making timely payments and reducing your debt-to-income ratio can help you qualify for a better loan with a lower interest rate. However, having a cosigner is another way to get a loan for a new vehicle when you have bad credit.

Having a cosigner on your car loan gives you a better chance of:

  • Getting approval for your new loan.

  • Getting a lower interest rate.

  • Having lower monthly payments.

  • Raising your credit score.

Can You Add a Cosigner When Refinancing a Car?

You can add a cosigner to your car loan when refinancing a car as long as your lender approves the cosigner. Lenders want to ensure that both you and your cosigner aren't a risk as borrowers. To qualify as a cosigner, your car loan provider will look at their:

  • Credit score: The higher a cosigner's credit score, the better the interest rate you can get on your loan. Since the lender takes the cosigner's credit score into account as well as yours, their better score can help you get a lower interest rate when you refinance.

  • Payment history: The payment history of your cosigner affects the interest rate and terms you can qualify for with your new loan. If they've made on-time payments consistently, it will help you get better terms when you refinance your car loan with a cosigner.

  • Income: Because your cosigner takes responsibility for your loan payments if you can't make them for some reason, the lender wants to know their income level. They'll also look at their debt-to-income ratio to ensure they can afford the debt if you don't pay.

  • Background: Many lenders run a background check on anyone applying for a loan to look for past fraud or financial issues. Your cosigner will need to pass this vetting to qualify to put their name on your auto loan.

Reasons to Add Someone Else When Refinancing a Car

Adding another person's name to your car loan can benefit you when refinancing. A few reasons you might add a cosigner when you refinance include:

  • You need to lower your monthly payment, but your credit score isn't good enough.

  • You can't afford to get a car loan on your own.

  • You haven't built up a good credit score because you're young.

  • You have a high debt-to-income ratio.

  • You have a poor payment history.

  • You haven't had your job for very long.

  • You don't have a payment history.

Reasons Not to Add Someone Else When Refinancing a Car Loan

Although it can offer many benefits, there are some reasons adding someone else to your car loan isn't a good idea. These could be:

  • They won't help you get a lower monthly payment or better terms.

  • They don't have the financial ability to take over your loan.

  • They don't feel comfortable cosigning for you — never pressure someone into cosigning your loan.

  • They don't understand their responsibilities as a cosigner even after you explain them.

  • They don't qualify for some reason after applying for the loan.

Should You Add a Cosigner When Refinancing Your Car Loan?

Adding a cosigner when you refinance your car loan may help you get a better interest rate or allow you to pay your loan off faster. If your cosigner has a high credit score, it can help a lender see you as more creditworthy. Also, if your cosigner has a substantial income, a lender will more readily loan you money because your cosigner guarantees the monthly car payments. A cosigner also helps if you don't have much of a credit history, which is the case for many new borrowers.

Adding a cosigner isn't the best option when the person you ask to cosign your loan is uncomfortable putting their name on the document, or they aren't a very responsible person. Be careful when choosing a cosigner, as this person is financially tied to you until you pay off your car loan. If you can't make your payments and they have to pay them instead, it could damage your relationship. Keep these things in mind when considering your financing options.

Sometimes, you can get a car loan with no credit history or cosigner, but having a cosigner will likely lower your monthly payments. You can also make larger payments each month. This lowers the interest you pay and may result in paying off your loan early. You have options if you're trying to lower your monthly car payments or just qualify for your first car loan, like making extra payments or a higher down payment. Make sure to budget insurance into your financed car payment, along with repairs and maintenance.

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