Getting a Co-signer for a Car Loan: Good Idea or Not?

Using a co-signer for a car loan in Canada is a useful way to qualify if you’re a borderline case or if your own application isn’t likely to be accepted on its own. It’s a simple solution to a simple problem and that’s what we’re going to discuss today.

Our car loans team will explain everything you need to know about using a co-signer for a car loan in Canada.

Co-signers & Car Loans

A co-signer is a guarantor for the loan. You sign the loan as normal, committing yourself to the specified repayments over the specified term. The co-signer then guarantees that loan, meaning if you default for some reason, they commit to repaying it in your place.

While a simple process, it requires a lot of trust. You need to be able to trust that the co-signer will have your back when applying for the loan. The co-signer also needs to trust that you’ll do all you can to avoid defaulting.

When Should You Use a Co-signer?

You would typically use a co-signer if your application on its own would be likely to fail. That could be for several reasons, including:

Credit score too low: If you have bad credit your credit score, it's likely you won't be able to borrow the amount you need without a co-signer.

Lack of credit history: If you’re young and haven’t developed a credit history yet, you will have trouble qualifying for a loan on your own.

Need a better vehicle: If you have specific needs that cost extra and your own credit score wouldn’t allow you to borrow that much.

There are other reasons of course, but these are the primary motives for using a co-signer on a loan.

How Does the Loan Application Work With a Co-signer?

When it comes time to apply for the loan, you prepare as usual. Check your credit score, get your down payment together, set a budget, get your paperwork together, get prequalified, find a car and get everything ready.

You also need to find someone willing to be a co-signer. That could be family, partner, close friend or someone who trusts you enough.

They will have to go through much the same preparation, with their own credit score and paperwork.

We submit co-signer loan application with you as the primary borrower and your co-signer as guarantor.

Both you and your co-signers credit reports are checked and you’re both assessed for affordability and your paperwork checked. If everything is in order, you are both asked to sign the car loan agreement.

You as the primary borrower and your co-signer as guarantor.

Co-signer Car Loans Are Good Overall

Co-signer car loans are not the only way to get finance if your own score doesn’t quite hit the mark, but it is an effective way to do it. Your main challenge is finding someone you trust and who trusts you enough to guarantee your loan.

If you default, the money will be taken from the co-signers account so they need to have the means to repay without it putting them into financial difficulty.

You keep the title to the car, even though there’s a co-signer on the loan. You only lose that title in the event of a repossession.

Any missed payments will impact both your credit scores so both parties need to be fully aware of what they are signing up to.

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