Many people that have bad credit are told that they may need a co-signer or co-borrower for an auto loan. Understanding co-signers and how they can be of benefit to overcoming bad credit is something that confuses many people. Mostly, because of some of the deceptive practices that take place in car dealership.
In the past, co-signers were merely used as a way to help someone that had no credit history to obtain their first car loan. Now, as finance managers and loan officers have had to work hard to try to help people with bad credit, co-signers are often used for bad credit auto financing.
Avoid the “Co-Signer Scam”…
In some dealerships, when someone with bad credit comes in, they are told that they need a co-signer. A common trick is to tell the customer that the co-signer will only be second on the loan and only liable should the loan be defaulted on. The co-signer scam is where the finance manager puts the person that you both think is the co-signer, as the primary borrower. This leads you to believe that the co-signer is only signing as a guarantor, when in fact, they are used as the primary borrower.
In some cases, the person with bad credit that needed the “co-signer” is not even on the loan. The finance manager in this case, will have the person with bad credit sign a part of the contract that is irrelevant, to make them think that they are on the loan, when they are in fact, not any part of the contract.
This harms the people that are liable for the loan with auto insurance complications as well as, when the person that thought they were on the loan contract has to call about the loan and is told that they can’t speak to the loan company without the other person’s permission. This is a wide-spread problem and is an abuse of the system that is common in some car dealerships. (Don’t expect them to be happy about this being published).
Co-signers & Credit Cards…
Many people that have credit cards, have the option of adding another “user”. This is done by simply providing the person’s social security number and basic information and can usually be done online or over the phone. What is not commonly known, is that the added “user” become liable for the full balance of the credit card, should the original card holder default. This is something to keep in mind when considering the addition of other family members as “additional card users”.
If you have bad credit, co-signers may or may not help. THere are good sources online that can help you to obtain auto financing, without having to go through the typical dealership sale process. Bad credit is a challenge, but there are legitimate companies that operate outside of car dealerships that are willing to help you.