By July 14, 2007 1 Comments Read More →

Establishing credit for buying a new car with a co signer

Reader question:

I’m thinking about buying a new car, but I don’t have much credit history and I don’t make a lot of money. What do I do?

Ben

Get a co-signer.

It can be kind of difficult thing to do, getting someone to co-sign a loan for buying a new car with you, so it has to be someone that you trust a whole lot, and who trusts you the same. A co-signer can be someone who has equa ownership of the car, or could just be someone who is helping you out in getting a loan, who will probably never drive the car and won’t have their name on the insurance. The co-signer could be your parents or an uncle or a friend who has more credit history or a better income. Whichever way you go, you are both giving that person power over whatever decisions you make concerning the car, as well as giving them a lot of responsibility over something that they might not ever use. If you have a co-signer, you have to be very responsible, because it isn’t just your credit history on the line if you default on a payment.

If you have a co-signer, and you don’t pay your car note, then your co-signer must pay it. And if they can’t, then it will impact the credit histories of the both of you, and the car will be repossessed. That stays on the credit report for seven years, and think of your parents being unable to get into a house or a new car. Even if later on you make a lot of money, it doesn’t matter if you’re trying to get a loan because it is mostly your credit score that they are looking at.

So make your decision to get a co-signer on a loan wisely. And when you do, watch out for the tricks of the trade. One of those is that, when you sign the paperwork for your loan, the salesperson will trick the co-signer into signing the wrong line. This means that the car will end up in their name, and not your own. So you won’t be building credit history at all.

Cheers,

Fashun Guadarrama.

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  • Don

    Auto finance is what I do for a livnng and there is simply not enough information to accurately answer your question.The following is a list of what lenders look for to approve a car deal.Factors.

    1. Loan to value (LTV).
    2. Age of vehicle.
    3. Term of loan.
    4. Miles on vehicle.
    5. Down payment.
    6. Time on job.
    7. Time at residence.
    8. Monthly income before taxes.
    9. Credit score/profile.
    10. Total debt to income including new payment.

    What they look for;

    1. Between 85% and 115%.
    2. No older then 8-years.
    3. 36-72 months.
    4. No more then 100,000.
    5. 10% of the sales price or $ 1,000.00.
    6. 2-years.
    7. 2-years.
    8. $ 1,500.00 to $ 2,000.00 depending on lender.
    9. 540 or above with 4 paid as agreed lines of credit with 1 being a installment loan paid at least 12 times for at least $ 150.00 a month and in the credit bureaus for at least 3 years.
    10. Not to exceed 45%.

    Another thing that comes into play is called payment to income ratio so depending on the term of the loan and the interest rate you would have to budget for the payment. Most lenders do not exceed 16% without actually seeing your credit report the largest problem I see is your income $ 1,600.00 a month which is below the minimum incomes required by most major lenders and even if it was not that time 16% equals $ 256.00 a month and there is no way in the world that’s going to pay for a $ 32,000.00 car.

    At $ 256.00 a month even at 0% interest for 72-months the maximum you can finance is $ 18,370.00 AND 0% for 72-months is simply not going to happen.You need to be more around the $ 11,500.00 TO $ 12,500.00 range for a total amount to finance.