You will hear these terms quite often, but do you really know what they mean? We’re going to help you understand the difference between a joint auto loan and a joint auto loan, including which one to choose and when!
Most people who shop for auto loans seem to think that joint lending and co-signing an auto loan are the same thing. While both are related to obtaining a loan with the help of another person, the difference lies in the degree of help involved. Will the other person make the loan payments or will they just let you take advantage of their credit?
In this post, we break down what it means to sign a joint auto loan (co-borrower) versus a cosigned auto loan, and how to choose between the two.
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Joint Auto Loan vs. Cosigned Auto Loan: A Snapshot
Joint car loan (co-borrowers)
Cosigned Auto Loan
|1. Both co-signers share the responsibility for the monthly payments in the way that they themselves decide
2. Both co-borrowers are entitled to the use of loan proceeds
3. Credit scores of both co-borrowers will be considered in a joint loan
4. Joint auto loans are taken out by married couples, business partners, and parents with adult children.
5. Both co-borrowers will jointly own the car at the end of the loan term.
|1. The primary borrower is primarily responsible for the monthly payments, and the co-borrower only steps in if they default
2. Only the main borrower can use the loan to buy a car
3. More importance will be given to the credit score of co-signers
4. Parents or close friends can usually co-sign a person to help them get lower rates
5. Only the co-signer will own the car at the end of the loan term
What is a joint car loan?
- In a joint car loan, two people (called co-borrowers) apply for a loan together and have equal responsibility for repaying the loan.
- Once the loan closes, both applicants will jointly own the car. Both names will appear on the title and registration.
- Co-borrowers are also called co-applicants and generally trust each other to take equal responsibility for payments.
- Joint auto loans are commonly taken out by married couples, business partners, long-term partners, parents and children, etc.
- Joint auto loans allow you to borrow larger amounts due to lower risk of default.
Whose credit is used for a joint car loan?
When applying for a joint auto loan together, the lender will consider the credit scores of both co-borrowers. However, any default on payments by either co-borrower will reflect negatively on both credit scores.
When should you consider a joint car loan?
- You may consider a joint auto loan if you are a married couple, long-term partners, or business partners looking to jointly own a vehicle.
- In some cases, a parent and child may also co-borrow a joint auto loan.
- If you have a poor payment history, bringing in a co-borrower can help you get a larger loan amount.
What is a cosigned car loan?
- In a cosigned auto loan, the person who needs the funds is called the primary borrower. However, in some cases, they may not be able to obtain an individual position due to a poor credit score.
- To make up for a bad credit score and get lower interest rates, the applicant can get someone with a good credit score to co-sign the loan.
- The co-signer allows the primary borrower to take out a loan by taking advantage of the co-signer’s good/excellent credit score.
- The co-signer is not directly responsible for the monthly payments, but will be responsible if the primary borrower defaults.
- At the end of the loan, only the primary borrower is entitled to ownership of the vehicle, not the co-signer.
- The co-signer is usually a family member or someone trusted by the applicant.
Whose credit is used for a co-signed auto loan?
In a cosigned auto loan, the lender will consider the credit scores of both the primary borrower and the cosigner. However, the cosigners’ credit score will carry more weight, as it is used to offset the lender’s risk.
When should you consider a cosigned auto loan?
- You should only ask someone to co-sign a car loan if you have a bad credit score and don’t want to get a joint loan.
- Cosigned auto loans help people with no payment history, poor credit, or bankruptcy/foreclosure history access affordable auto loan rates.
- The co-signer should always be someone you trust, as they will be responsible for the monthly payment if you are unable to pay.
Main differences between co-signer and co-signer
In a joint loan, both co-borrowers will be equally responsible for the payments and will jointly own the vehicle at the end of the loan term.
However, on a cosigned loan, the cosigner will only be responsible for monthly payments if the primary borrower falls behind or defaults. At the end of the loan term, only the primary borrower will own the car.
Can joint and cosigned auto loans negatively affect my credit?
Yes, just like with a personal loan, missing monthly payments on a joint or co-signed loan can also negatively affect your credit score.
- If either co-borrower on a joint car loan defaults on their part of the payment, it will negatively affect both of their credit scores.
- Even if you co-signed a loan, your credit score could be affected if the primary borrower falls behind on payment or defaults.
- Getting a joint loan or co-signing a loan also increases your credit utilization, which in turn can lower your score
- Joint or cosigned loans may also reflect a higher debt-to-income ratio and could affect your ability to qualify for a future loan.
Frequently asked questions (FAQ)
When should you choose a joint car loan?
It’s best to choose a joint auto loan when you want to share the responsibility of paying monthly payments. In the end, both co-borrowers will share ownership of the vehicle.
Is it better to have both spouses on a car loan?
If you are a married couple and want to buy a car, it is better to take out a joint loan with both of you as co-borrowers. Both spouses can repay the loan in monthly installments and take joint ownership of the car at the end of the loan term.
Whose credit score is used when co-signing?
In a cosigned loan, the credit score of the cosigners carries more weight than the primary borrower. This is because the primary borrower will generally have poor credit and will rely on excellent credit from co-signers for lower rates.
Is a co-applicant the same as a co-signer?
A co-applicant for an auto loan is someone who shares the responsibility of paying it back. It’s not the same as a co-signer, who doesn’t need a loan but helps another borrower get a loan using his or her excellent credit score.
Can I remove myself or the other person from a joint auto loan?
Yes, you can take yourself or anyone else out of a joint auto loan by refinancing the loan. This allows you to pay off the existing loan and sign on with a new lender, while earning lower rates in the process.
Is it better to co-borrow or co-borrow a car loan?
It’s best to co-borrow if you want to jointly own the car at the end of the loan term. You can co-sign if you are helping someone (such as a close friend, child, parent, or spouse) to get lower interest rates with your credit score.
Can I have more than one joint loan?
Yes, you can have more than one joint loan as long as your credit score, payment history, and other finances are strong.