Co-Signing a Car Loan in Canada: Everything You Should Know

Co-Signing a Car Loan in Canada: Everything You Should Know

Posted on July 12, 2022

People are usually in a tight spot every now and then and might need a loan to bail themselves out. Co-signing a loan in Cayuga gives a customer a higher chance of getting the loan and reduces the risk of the financier lending out the money.

While you must always look to help people, you must also know the implications of your actions, particularly when it comes to co-signing.

What is Co-Signing?

Anytime an individual cannot access a loan due to their low credit score, co-signing the loan reduces the risk of lending out the loan to the lender.

Aside from this, a co-signer helps customers get better loan terms, such as lower interest rates, as they become more appealing to the lender.

As a co-signer, you have agreed to share the responsibilities of the loan with the individual. In the worst case, repay the loan on the defaulters' behalf.

Criteria For Co-Signing a Car Loan

Although co-signing is a big risk, it is not a risk everyone can take. This is because certain criteria must be met before you co-sign a loan.

Some of those criteria are:

• A co-signer must have a good credit score which is 670, according to Vantage Score or FICO.
• The co-signer must possess a debt-to-income ratio higher than 43% for several loans, including auto loans.

What You Should Know Before Co-Signing

Co-signers are responsible for repaying the loan: Being a co-signer is much more than vouching for an individual. It involves taking responsibility for the loan in case the person defaults.

Therefore, co-signing a loan, you must ask yourself if you can repay the loan on the customer's behalf. This is because you can be sued along with the defaulter.

Co-signing can affect your credit: Most times, lenders access your creditworthiness by checking your credit history or report. The information about the loan you co-signed for often reflects on your credit report.

So, co-signing a loan might affect your ability to obtain a loan yourself.

Co-signers can demand monthly statements: It is common for principal borrowers to receive monthly statements for their loans.

However, as a co-signer, it is not out of place to request monthly statements for the loan.

Demanding monthly statements will help you track the repayment process and schedule. This way, you will be able to know if the principal borrower has defaulted and act accordingly.

Frequently Asked Questions

Can I be released from a co-signed loan?

Yes, you can be released from a co-signed loan. This is only possible if a release option is included in the agreement. Even if it is, there is no guarantee that it will be approved, as both lender and consumer must agree.

Can co-signing a loan affect my credit?

Definitely! Co-signing affects your credit as you have taken responsibility for the debt. Ultimately the loan becomes yours if the person refuses to pay. The loan can be reported to the credit bureau and reflected on your credit report.

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