The Role of the Cosigner In Auto Finance

When going for auto finance arrangements for the first time or getting the loan at a low credit score, chances are that the lender would either reject the loan or charge a higher rate. The reason is that both of these clients are a financial liability. In the first case there is no credit history to judge from whereas in the second case there is plenty of history which suggests that the borrower is a financial risk. However, there are ways with which the borrower can change the mind of the lender and allow him/her to provide the auto finance at a depleted interest. One of the ways is by getting a cosigner.

A cosigner is an individual who has a particularly high credit score (the score has to be high and near the prime range) and who signs as a guarantor. The guarantor provides the guarantee that the loan amount would be paid even if the borrower of auto finance defaults on the loan. This means that the cosigner agrees to the fact that he/she would provide the money to the lender if the person he/she has accounted for cannot pay the loan. The cosigner is usually a member of the family, a guardian or a close friend. This is not a requirement but in the current economic scenario these are the only people who would trust a person to pay the auto finance back on time.

The lender is quite happy with the arrangement because his/her money is secured by a high credit score holding person. If however, there is still a default on the loan then the credit score of both the individuals involved would be affected. This might not matter a lot to the borrower but getting the credit score depleted over someone else’s auto finance is a hard thing to digest.

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