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What’s the difference between a joint and co-signed auto loan?

Most people need to take out a loan to make big purchases, like a vehicle. But if you’re new to car loans you may think about asking someone else to help.

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Auto Refinancing
March 30, 2022

Most people need to take out a loan to make big purchases, like a vehicle. But if you’re new to car loans, or if your credit history doesn’t land you great rates, you may think about asking someone else to help. But what kind of loan is right for you? Do you need a joint auto loan or a co-signed auto loan?

What’s the difference?

A Joint Loan is a loan when two people, or “co-borrowers,” own the vehicle or automobile together and pay off the loan together. Both people’s names are on the title and registration. Both co-borrowers use the vehicle and both people make monthly payments towards the loan. 

A Co-Signed Auto Loan is when one person owns the vehicle and makes monthly payments, and another person offers their good credit to qualify for loan terms with low-interest rates. Usually, this person is a family member. The Co-signer takes responsibility for the loan if the first person is unable to make payments, but does not own the vehicle. 

Related Article: What is the difference between Car Title & Registration

When should I consider a joint auto loan?

A joint auto loan is great for people buying an automobile together, like spouses or partners, or anyone who wants joint ownership of the vehicle.  A parent and their child might want to share the vehicle and be equally responsible for it together, for instance. A joint auto loan can also help meet income requirements for the loan since both co-borrower’s incomes will be added together.

Even if one person has no payment history, like the child, or bad credit, like one half of a partnership, your co-borrower’s credit report can bump the loan up so that you get a better interest rate.

Your lender looks at both people’s credit history on a joint auto loan application.

When should I consider a co-signed auto loan?

You might consider asking someone to co-sign your auto loan if you will own, operate, and make payments on the vehicle, but you have bad credit, you have no payment history, or you have a repossession or bankruptcy in your credit report.

In these cases, asking someone you trust (and who trusts you!) to co-sign the loan might be a good idea.  When joint applicants co-sign, they are responsible for the loan if you are unable to make payments. As the main person responsible, you need to meet income requirements because you will be the one making payments, but your co-signer also needs to meet income requirements AND have good credit.

Your lender may look at both people’s credit history for a co-signed auto loan. You also may remove a co-signer from the loan through a few methods later on.

Ultimately

Showing lenders that one co-borrower has good credit means you’re more likely to get loan approval on your car loans. When you think about the type of loan you need, ask yourself: Who will own and make payments on the vehicle? If you intend to have joint ownership of the vehicle with another person, think about a joint auto loan. If you intend to be solely responsible, think about asking someone to be a co-signer on your loan.

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