Basic Requirements for Co-Signing a Car Loan

Whether you are a borrower with poor credit history, a student, a first-time driver or anybody who is not considered to be eligible for a car loan, you can arrange for a co-signer to increase the loan approval chances. Here are the benefits of using a co-signer while applying for a car loan:

1. Helps to get low-interest rate- When you apply for a car loan along with a co-signer, you will be able to get loans at better interest rates compared to the rate that you would had by applying for it solo. Since lenders usually offer interest rates based on the credit risk of the borrower, the inclusion of a co-signer increase the loan repayment chances and this is why the lenders feel confident to offer loan at better rates. This is indeed a good way to get loan approval in spite of having a bad credit-record that too at an affordable interest rate.

1. Builds good credit record- This is another benefit of having an auto loan with a co-signer. When a first-time credit borrower applies for a car loan with a guarantor it becomes easy for him/her to pay the loan amount on time. Since he/she pays the EMIs on time without piling any debts, this in return improves the credit history and the credit score/rating of the borrower. As a result, the borrower in future can apply for any other loan even without having any guarantor.

1. Acts as a motivator- Your co-signer being someone with a good credit record, sound financial history and strong job/employment status is wise about how a loan works and what should be done to avoid unpleasant situations. In simpler words, if you have a cosigner with you, he/she will motivate you to make the payments on time. Also, if you are not attentive towards the payments or tend to miss the payment dates, he/she being a responsible individual will bring it to your notice before the situation becomes unmanageable.

Basic Requirements to become a Car Loan Co-Signer

As told earlier, everybody is not eligible to become a car loan co-signer. There are a few basic criteria mandated by the banks which a person needs to fulfil for becoming a car loan guarantor. Here are the basic requirements for co-signing a car loan:

1. Willingness to sign loan agreement- Though obvious, but a person who is willing to become a co-signer must be firm in the decision of taking the responsibility. To ensure this, banks mandate the person to sign a contract where he/she is supposed to state that he/she will pay all the pending loan amount in case the borrower fails to do that. No verbal agreement or oral promise is accepted by the banks. The guarantee must be in written form only. Also, the person needs to agree with all the terms and conditions put forth by the bank and then give his/her consent for the same on paper.
2. Close relation with the borrower-This criteria varies from lender to lender. While some banks and financial agencies permit unrelated people or distant family members to become a car loan co-signer, there are some other lenders who are very strict with their terms and allow only co-signers who share the same residential address with the borrower. As proof, they would require the utility bills addressed to the guarantor. Usually, people having blood relation with you like your family members or close friends can become co-signers.

1. A decent credit score/rating- The person whom you have chosen to co-sign your car loan agreement along with you should have a good credit history of paying all his/her loan EMIs and credit card payments on time. Generally, banks look for a credit rating of 750 or even more when giving approval to a person to become a car loan co-signer. A person having a strong credit rating is considered to be a credible person who can shoulder the responsibility well.
2. Regular income & payment ability- Banks want to assess the repayment ability of a co-signer before giving him/her the approval. In order to check how credible the guarantor is he/she needs to provide income proofs to the lender in the form of salary slips, bank statements, and other related documents if the person is a salaried employee. In cases where a guarantor is a self-employed person or a business owner, he/she is required to submit their ITR (Income Tax Returns).
3. Residence & employment stability proof: Though this is not a mandatory criteria for co-signing a car loan agreement, some banks want the willing co-signers to furnish proofs of their employment and residence stability. Co-signers having a constant cash flow and permanent address are the ones who are preferred by the banks as they can easily rely on such persons and feel that their money is in safe hands.

So, these are the basic requirements for co-signing a car loan in India. But just meeting these basic requirements is not enough for becoming eligible as a co-signer. A co-signer will be the person who will be equally responsible to pay the loan amount and the EMIs on time if you fail to pay that and this is why the person must be well aware of his/her responsibility before signing the agreement. Moreover, the credit history and the credit record of the guarantor will get negatively affected if the payments are missed and positively in case of consistent and timely payment.

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