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Bad Credit Auto Loans And Cosigners

Usually, the rates and terms offered on bad credit auto loans are higher than for those offered to consumers with good credit ratings. However, one option available to borrowers with bad credit history is to have a co-signer.

A cosigner is basically, someone like a friend or family member who will take responsibility and ensure that all the payments will be made on time every month, and will be willing to be held accountable if otherwise. This is a big responsibility. However, the co-signer cannot claim partial ownership to the automobile, as their name is not indicated on the title of the car. Therefore they cannot come and take the car when there is a default in payment.

A cosigner must be someone with good credit, someone who never defaulted on any of their payments. It should be a person with a high debt ratio. This means that the not more than 50% of their earnings should be going back out in the form of expenses. Though different lenders may look for different elements, the above two are generally included in determining a qualified cosigner.

Not many people are willing to cosign on bad credit auto loans, or any loan for that matter, because any default on the part of the borrower would negatively reflect on their credit rating too. The only protection a cosigner has is that s/he can be ask to be alerted as soon as there is any default in payment so that they can try and rectify matters.

Therefore, though it may not be easy, if a consumer with bad credit can secure a cosigner, then s/he can be guaranteed favorable interest rates and terms. However, cosigning is no longer a requirement these days on bad credit auto loans, even when the borrower does not have any asset to use as collateral.

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