When taking out a car loan or refinancing a car loan, using a co-borrower may be an option worth considering. Let’s take a look at exactly what a co-borrower is, the difference between a co-borrower and a cosigner, and the pros and cons of having a co-borrower or a cosigner on your car loan and your loan refinance.
What Is a Co-Borrower?
A co-borrower is someone who applies for an auto loan with you. As a co-borrower, the person is treated as an equal in the responsibilities, rights, and ownership of the car. A co-borrower’s credit score, debt-to-income-ratio (DTI), income, assets, and other financials are also looked at during the application process. Co-borrowers are also on the loan documents, meaning they’re on the hook for making payments on the loan. For example, you and your spouse can apply for a car loan as co-borrowers. Or you and your sibling live together and plan on sharing a car, so you apply for the loan as co-borrowers.
Can I Use a Co-Borrower to Refinance an Auto Loan?
Yes, the same advantages and considerations to using a co-borrower exist when you want to refinance as existed with obtaining the original loan.If you want to refinance an auto loan, which is when you take out a new loan, perhaps for a more favorable interest rate or better terms, you can add a co-borrower. While the lower of the two credit scores will be used in a co-borrower arrangement, combining incomes can help you snag better terms on your loan. You may find the cost to refinance an automobile more favorable with a co-borrower.
Does It Matter Who Is the Borrower and Co-Borrower?
Because a co-borrower is simply another borrower on the loan and both borrowers share equal responsibility in making payments, it usually doesn’t matter who is the borrower or the co-borrower. It should be noted that on the loans with co-borrowers, sometimes a lender will note a primary borrower. This might be the person with the higher credit score, or perhaps the name appearing first in the application.
What Rights Does a Co-Borrower Have?
Essentially, a co-borrower has the same rights as the borrower when it comes to the vehicle. For example, should you want to list the car for sale or refinance the car, you can’t do so without getting your co-borrower’s permission. During the sale of a car, both borrowers usually need to be present to sign the car’s title to the new owner. In the lender’s eyes, a co-borrower is equally responsible for making payments on the vehicle — regardless if you and the co-borrower worked out some sort of verbal arrangement. Also, both you and your co-borrower could take hits on your credit scores if payments on the loan weren’t made in time.
Can a Co-Borrower Take the Car?
A co-borrower can take the car, but not without your permission. For example, if the co-borrower wants to take the car, sell it, or trade it in, you will need to sign off on it before the co-borrower can proceed. When it comes to signing the title to sell or trade in a car, there might be exceptions. Look closely at the fine print to see if both co-borrowers need to be present. The rules also vary by state, so both borrowers may need to be at the sale or trade no matter what the title says.
(Learn more: Personal Loan Calculator)
Co-Borrower vs. Cosigner
While commonly confused, a co-borrower and a cosigner are not the same thing. When someone is a co-borrower, his or her name is on the loan and the person is tasked with making payments along the way. While a co-borrower has the same financial responsibilities, rights, and ownership of the car, a cosigner does not. There are certain cosigner requirements, the main one being the cosigner must become involved and make necessary payments if the borrower is unable to. Typically, a cosigner comes into the picture if a borrower can’t qualify for a car loan on their own. The reasons might include if there are blemishes on the borrower’s credit profile and their credit score is low, or if they don’t have much of a credit history. It’s only when they’re not able to keep up with payments that the cosigner is compelled to make those payments. A cosigner can be a spouse, relative, or friend — anyone who wanted to help the borrower qualify for a loan they probably wouldn’t qualify on their own.
Pros and Cons of Using a Co-Borrower Versus a Cosigner
Let’s look at the advantages and disadvantages of using a co-borrower versus a cosigner on a car loan:Pros of using a co-borrower:
- May qualify for a larger loan amount
- Can share in the repayment of the loan
Cons of using a co-borrower:
- You’re not the sole owner of the car
- Typically need their sign-off before trading, selling, or refinancing the car
- Both your credit scores could take a hit if unable to stay on top of payments
Pros of using a cosigner:
- May qualify for a loan with better terms or larger amounts if you have less-than-stellar credit or are new to credit
- You’re the only owner of the car
- Cons of using a cosigner:
- You are the one on the hook for making payments, unless you fall behind and the cosigner must take over
- If you don’t stay on top of payments, it could hurt not only your credit score but also your cosigner’s score
Is Having a Co-Borrower Best for You?
Having a co-borrower when you take out a loan or refinance your auto loan can be a solid choice if you’d like someone to help you with payments and if you don’t mind co-ownership. This typically works best if you live with someone – if they’re your spouse or a close relative. The help the co-borrower offers with credit and employment history in obtaining a car loan could make this a good choice.If you’re interested in refinancing your car to either add a co-borrower or remove one, consider Lantern by SoFi. With just a single application, you can compare auto loan refinance rates from top lenders, all with no obligation to you.
This article originally appeared on SoFi.com and was syndicated by MediaFeed.org
SoFi receives compensation in the event you obtain a loan, financial product, or service through the Lantern marketplace. This Lantern website is owned by SoFi Lending Corp., a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law, license number 6054612; NMLS number 1121636. (www.nmlsconsumeraccess.org). This site is NOT owned and operated by SoFi Bank. Loans, financial products, and services may not be available in all states.All rates, fees, and terms are presented without guarantee and are subject to change pursuant to each provider’s discretion. There is no guarantee you will be approved or qualify for the advertised rates, fees, or terms presented. The actual terms you may receive depends on the things like benefits requested, your credit score, usage, history and other factors.*Check your rate: To check the rates and terms you may qualify for, Lantern and/or its network lenders conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, the lender(s) you choose will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit. All loan terms, including interest rate, and Annual Percentage Rate (APR), and monthly payments shown on this website are from lenders and are estimates based upon the limited information you provided and are for information purposes only.
Estimated APR includes all applicable fees as required under the Truth in Lending Act. The actual loan terms you receive, including APR, will depend on the lender you select, their underwriting criteria, and your personal financial factors. The loan terms and rates presented are provided by the lenders and not by SoFi Lending Corp. or Lantern. Please review each lender’s Terms and Conditions for additional details.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Third-Party Brand Mentions: No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
More From MediaFeed:
Am I Paying For More Auto Insurance Than I Really Need?
Figuring out just how much car insurance you really need can be a challenge.
At minimum, you’ll want to make sure you have enough car insurance to meet the requirements of your state or the lender who’s financing your car. Beyond that, there’s coverage you might want to add to those required amounts. These policies will help ensure that you’re adequately protecting yourself, your family, and your assets. And then there’s the coverage that actually fits within your budget.
We know it may not be a fun topic to think about what would happen if you were involved in a car accident, but given that well over five million drivers are involved in one every year, it’s a priority to get coverage. Finding a car insurance policy that checks all those boxes may take a bit of research — and possibly some compromise. Here are some of the most important factors to consider.
Related: Personal finance basics
DepositPhotos.com
A good launching pad for researching how much car insurance you need is to check what your state requires by law. Only two states do not require a car owner to carry some amount of insurance: New Hampshire and Virginia. If you live elsewhere, find out how much and what types of coverage a policyholder must have. Typically, there are options available. Once you’ve found this information, consider it the bare minimum to purchase.
As you dig into the topic, you’ll hear a lot of different terms used to describe the various kinds of coverage that are offered. Let’s take a closer look here.
monkeybusinessimages / istockphoto
Most states require drivers to carry auto liability insurance. What it does: It helps pay the cost of damages to others involved in an accident if it’s determined you were at fault. Let’s say you were to cause an accident, whether that means rear-ending a car or backing into your neighbor’s fence while pulling out of a shared driveway. Your insurance would pay for the other driver’s repairs, medical bills, lost wages, and other related costs. What it wouldn’t pay for: Your costs or the costs relating to passengers in your car.
Each state sets its own minimum requirements for this liability coverage. For example, in California, drivers must carry at least $15,000 in coverage for the injury/death of one person, $30,000 for injury/death to more than one person, and $5,000 for damage to property. The shorthand for this, in terms of shopping for car insurance, would be that you have 15/30/5 coverage.
But in Maryland, the amounts are much higher: $30,000 in bodily injury liability per person, $60,000 in bodily injury liability per accident (if there are multiple injuries), and $15,000 in property damage liability per accident. (That would be 30/60/15 coverage.)
And some may want to go beyond what the state requires. If you carry $15,000 worth of property damage liability coverage, for example, and you get in an accident that causes $25,000 worth of damage to someone else’s car, your insurance company will only pay the $15,000 policy limit. You’d be expected to come up with the remaining $10,000.
Generally, recommendations suggest you purchase as much as you could lose if a lawsuit were filed against you and you lost. In California, some say that you may want 250/500/100 in coverage – much more than the 15/30/5 mandated by law.
Recommended: What Does Liability Auto Insurance Typically Cover?
DepositPhotos.com
Collision insurance pays to repair or replace your vehicle if it’s damaged in an accident with another car that was your fault. It will also help pay for repairs if, say, you hit an inanimate object, be it a fence, tree, guardrail, building, dumpster, pothole or anything else.
If you have a car loan or lease, you’ll need collision coverage. If, however, your car is paid off or isn’t worth much, you may decide you don’t need collision coverage. For instance, if your car is old and its value is quite low, is it worth paying for this kind of premium, which can certainly add up over the years?
But if you depend on your vehicle and you can’t afford to replace it, or you can’t afford to pay out of pocket for damages, collision coverage may well be worth having. You also may want to keep your personal risk tolerance in mind when considering collision coverage. If the cost of even a minor fender bender makes you nervous, this kind of insurance could help you feel a lot more comfortable when you get behind the wheel.
DepositPhotos.com
When you drive, you know that unexpected events happen. A pebble can hit your windshield as you drive on the highway and cause a crack. A tree branch can go flying in a storm and put a major dent in your car. Comprehensive insurance covers these events and more. It’s a policy that pays for physical damage to your car that doesn’t happen in a collision, including theft, vandalism, a broken window, weather damage, or even hitting a deer or some other animal.
If you finance or lease your car, your lender will probably require it. But even if you own your car outright, you may want to consider comprehensive coverage. The cost of including it in your policy could be relatively small compared to what it would take to repair or replace your car if it’s damaged or stolen.
kadmy / istockphoto
Several states require Personal Injury Protection (PIP) or Medical Payments coverage (MedPay for short). This is typically part of the state’s no-fault auto insurance laws, which say that if a policyholder is injured in a crash, that person’s insurance pays for their medical care, regardless of who caused the accident.
While these two types of medical coverage help pay for medical expenses that you and any passengers in your car sustain in an accident, there is a difference. MedPay pays for medical expenses only, and is often available only in small increments, up to $5,000. PIP may also cover loss of income, funeral expenses and other costs. The amount required varies hugely depending on where you live. For instance, in Utah, it’s $3,000 per person coverage; in New York, it’s $50,000 per person.
DepositPhotos.com
Despite the fact that the vast majority of states require car insurance, there are lots of uninsured drivers out there. The number of them on the road can range from one in eight to one in five! In addition, there are people on the road who have the bare minimum of coverage, which may not be adequate when accidents occur.
For these reasons, you may want to take out Uninsured Motorist (UM) or Underinsured Motorist (UIM) coverage Many states require these policies, which are designed to protect you if you’re in an accident with a motorist who has little or no insurance. In states that require this type of coverage, the minimums are generally set at about $25,000 per person and $50,000 per accident. But the exact amounts vary from state to state. And you may choose to carry this coverage even if it isn’t required in your state.
If you’re seriously injured in an accident caused by a driver who doesn’t carry liability car insurance, uninsured motorist coverage could help you and your passengers avoid paying some scary-high medical bills.
Let’s take a quick look at some terms you may see if you shop for this kind of coverage.
Uninsured motorist bodily injury coverage (UMBI)
This kind of policy covers your medical bills, lost wages, as well as pain and suffering after an accident when the other driver is not insured. Additionally, it provides coverage for those costs if any passengers were in your vehicle when the accident occurred.
Uninsured motorist property damage coverage (UMPD)
With this kind of policy, your insurer will pay for repairs to your car plus other property if someone who doesn’t carry insurance is responsible for an accident. Some policies in certain states may also provide coverage if you’re involved in a hit-and-run incident.
Underinsured motorist coverage (UIM)
Let’s say you and a passenger get into an accident that’s the other driver’s fault, and the medical bills total $20,000…but the person responsible is only insured for $15,000. A UIM policy would step in and pay the difference to help you out.
Recommended: How to Pay for Medical Bills You Can’t Afford
Vera_Petrunina / istockphoto
Here’s another kind of insurance to consider: GAP insurance, which recognizes that cars can quickly depreciate in value and helps you manage that. For example, if your car were stolen or totaled in an accident (though we hope that never happens), GAP coverage will pay the difference between what its actual value is (say, $5,000) and what you still owe on your auto loan or lease (for example, $10,000).
GAP insurance is optional and generally requires that you add it onto a full coverage auto insurance policy. In some instances, this coverage may be rolled in with an auto lease.
gpointstudio / istockphoto
You may think you don’t need car insurance if you don’t own a car. (Maybe you take public transportation or ride your bike most of the time.) But if you still plan to drive occasionally — when you travel and rent a car, for example, or you sometimes borrow a friend’s car — a non-owner policy can provide liability coverage for any bodily injury or property damage you cause.
The insurance policy on the car you’re driving will probably be considered the “primary” coverage, which means it will kick in first. Then your non-owner policy could be used for costs that are over the limits of the primary policy.
vgajic
If you drive for a ridesharing service like Uber or Lyft, you may want to consider adding rideshare coverage to your personal automobile policy.
Rideshare companies are required by law in some states to provide commercial insurance for drivers who are using their personal cars — but that coverage could be limited. (For example, it may not cover the time when a driver is waiting for a ride request but hasn’t actually picked up a passenger.) This coverage could fill the gaps between your personal insurance policy and any insurance provided by the ridesharing service. Whether you are behind the wheel occasionally or full-time, it’s probably worth exploring.
Recommended: Which Insurance Types Do You Really Need?
DepositPhotos.com
Car insurance is an important layer of protection; it helps safeguard your financial wellbeing in the case of an accident. Given how much most Americans drive – around 14,000 miles or more a year – it’s likely a valuable investment.
There can be serious penalties for driving a car without valid insurance. Let’s take a look at a few scenarios: If an officer pulls you over and you can’t prove you have the minimum coverage required in your state, you could get a ticket. Your license could be suspended. What’s more, the officer might have your car towed away from the scene.
That’s a relatively minor inconvenience. Consider that if you’re in a car accident, the penalties for driving without insurance could be far more significant. If you caused the incident, you may be held personally responsible for paying any damages to others involved; one recent report found the average bodily injury claim totaled more than $20,000.
And even if you didn’t cause the accident, the amount you can recover from the at-fault driver may be restricted.
If that convinces you of the value of auto insurance (and we hope it does), you may see big discrepancies in the amounts of coverage. For example, there may be a tremendous difference between the amount you have to have, how much you think you should have to feel secure, and what you can afford.
That’s why it can help to know what your state and your lender might require as a starting point. Keep in mind that having car insurance isn’t just about getting your car — or someone else’s — fixed or replaced. (Although that — and the fact that it’s illegal to not have insurance — may be motivation enough to at least get basic car insurance coverage.)
Having the appropriate levels of coverage can also help you protect all your other assets — your home, business, savings, etc. — if you’re in a catastrophic accident and the other parties involved decide to sue you to pay their bills. And let us emphasize: Your state’s minimum liability requirements may not be enough to cover those costs — and you could end up paying the difference out of pocket, which could have a huge impact on your finances.
SrdjanPav
To get a ballpark figure in mind, consider these numbers.
SoFi
Your insurance company will probably offer several coverage options, and you may be able to build a policy around what you need based on your lifestyle. For example, if your car is paid off and worth only a few thousand dollars, you may choose to opt out of collision insurance in order to get more liability coverage.
FatCamera
Your deductible is the amount you might have to pay out personally before your insurance company begins paying any damages. Let’s say your car insurance policy has a $500 deductible, and you hit a guardrail on the highway when you swerve to avoid a collision. If the damage was $2,500, you would pay the $500 deductible and your insurer would pay for the other $2,000 in repairs. (Worth noting: You may have two different deductibles when you hold an auto insurance policy — one for comprehensive coverage and one for collision.)
Just as with your health insurance, your insurance company will likely offer you a lower premium if you choose to go with a higher deductible ($1,000 instead of $500, for example). Also, you typically pay this deductible every time you file a claim. It’s not like the situation with some health insurance policies, in which you satisfy a deductible once a year.
If you have savings or some other source of money you could use for repairs, you might be able to go with a higher deductible and save on your insurance payments. But if you aren’t sure where the money would come from in a pinch, it may make sense to opt for a lower deductible.
MonkeyBusinessImages
As you assess how much coverage to get, here’s some good news: Buying twice as much liability coverage won’t necessarily double the price of your premium. You may be able to manage more coverage than you think. Before settling for a bare-bones policy, it can help to check on what it might cost to increase your coverage. This information is often easily available online, via calculator tools, rather than by spending time on the phone with a salesperson.
DepositPhotos.com
Some insurers reward safe drivers or “good drivers” with lower premiums. If you have a clean driving record, free of accidents and claims, you are a low risk for your insurer and they may extend you a discount.
Another way to save: Bundling car and home insurance is another way to cut costs. Look for any discounts or packages that would help you save.
DepositPhotos.com
Buying car insurance is an important step in protecting yourself in case of an accident or theft. It’s not just about repairing or replacing your vehicle. It’s also about ensuring that medical fees and lost wages are protected – and securing your assets if there were ever a lawsuit filed against you.
These are potentially life-altering situations, so it’s worth spending a bit of time on the few key steps that will help you get the right coverage at the right price. It begins with knowing what your state or your car-loan lender requires. Then, you’ll review the different kinds of policies and premiums available. Put these pieces together, and you’ll find the insurance that best suits your needs and budget.
Learn More:
This article
originally appeared on SoFi.comand was
syndicated by MediaFeed.org.
Insurance not available in all states.
Gabi is a registered service mark of Gabi Personal Insurance Agency, Inc.
SoFi is compensated by Gabi for each customer who completes an application through the SoFi-Gabi partnership.
External Websites: The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Third Party Brand Mentions: No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third party trademarks referenced herein are property of their respective owners.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Prostock-Studio/istockphoto
AleksandarNakic
Featured Image Credit: iStock.
