How to Buy a Car With a Co-Borrower

What a co-borrower is and why lenders want one

A co-borrower is a second person who signs the loan with you and is equally responsible for repaying it. The lender can pursue either of you for the full amount if payments stop. This is different from a co-signer, who guarantees the loan but does not own the car.

Lenders ask for a co-borrower when your income or credit history alone does not meet their requirements. A co-borrower with stronger income or credit can lower the interest rate you both pay, sometimes by a full percentage point or more. The lender will check both of your credit scores, debt levels, and income before deciding whether to approve the loan.

Buying with a co-borrower means both names go on the title and loan documents. Both of you are legally bound to the debt. If the other person stops paying or damages the car, you remain responsible to the lender.

Key Takeaways

• A co-borrower signs the loan with you and is equally responsible for repayment, so the lender can pursue either of you for the full amount owed.
• The lender will pull credit reports and verify income for both borrowers before approving the loan.
• Both names appear on the title and loan documents, and both of you are legally bound to the debt.
• You can remove a co-borrower later by refinancing the loan in your name alone, but only if your credit and income now may have access to without them.
• If the co-borrower defaults, the missed payments damage both of your credit scores and the lender can pursue either of you for the full debt.

What the lender will check about both of you

The lender will pull a credit report for each borrower and look at credit score, payment history, and total debt. They want to see that neither of you has missed payments in the last year or two, and that your combined monthly debt payments do not exceed a certain percentage of your combined income—usually around 40 to 50 percent, though this varies by lender.

You will both need to provide recent pay stubs (usually the last two months), tax returns from the last year or two, and proof of employment. If either of you is self-employed, the lender will ask for more documentation, such as business tax returns or profit-and-loss statements. Some lenders also verify income by calling your employer directly.

The lender may also ask about the reason for the co-borrower—whether it is a spouse, parent, or friend—because some lenders have stricter rules about who can co-borrow. A few lenders will not accept a co-borrower who is not a spouse or immediate family member.

How the interest rate is set with two borrowers

The interest rate you receive is based on the credit profile of the borrower with the lower credit score. If you have a score of 680 and your co-borrower has a score of 720, the lender uses 680 to calculate your rate. This means a co-borrower with poor credit will not help you get a better rate, and may actually result in a higher rate than you would receive alone.

Before you agree to co-borrow with someone, ask the lender what rate each of you would receive individually. If the co-borrower's credit is significantly weaker than yours, you may pay more in interest over the life of the loan than you would if you borrowed alone or found a different co-borrower.

The down payment, loan term, and vehicle price also affect the rate. A larger down payment and shorter loan term typically result in a lower rate for both borrowers.

Ownership and title when there are two borrowers

Both borrowers' names will appear on the car title as owners. This means either of you can legally sell the car, but the lender holds a lien on the title until the loan is paid off. You cannot remove the lender's lien or sell the car without the other borrower's permission and signature.

Decide in advance how you will handle major decisions about the car—whether to sell it, trade it in, or make large repairs. If one borrower wants to sell and the other does not, you are stuck until you reach agreement or one of you refinances the loan to remove the other's name.

If the relationship between borrowers ends (divorce, breakup, or family conflict), removing one person's name from the title requires refinancing the loan. The remaining borrower must may have access to for the full loan amount on their own income and credit.

How to remove a co-borrower after the loan starts

You can remove a co-borrower by refinancing the loan in your name alone. This means applying for a new loan to pay off the existing one, and only your name appears on the new documents. You will need to may have access to based on your own income and credit score.

Refinancing typically takes two to four weeks. You will pay a new application fee and closing costs, which usually range from a few hundred to over a thousand dollars depending on the lender and loan amount. Some lenders waive closing costs if you refinance with them.

You can only refinance if your credit score and income have improved enough to may have access to for the loan amount without a co-borrower. If your situation has not changed, the lender will deny the refinance application. In that case, the co-borrower remains on the loan until it is paid off.

What happens if the co-borrower stops paying

If the co-borrower misses a payment, the lender reports it to both credit bureaus under both names. Both credit scores drop, even if you made your payment on time. The lender can pursue either of you for the full amount owed, and can sue, garnish wages, or repossess the car.

You have no legal recourse against the co-borrower through the lender—the lender's contract is with both of you equally. If you want to recover money from the co-borrower, you would need to sue them in small claims or civil court, which is expensive and time-consuming.

If you discover the co-borrower is not paying, contact the lender immediately to discuss your options. Some lenders will work with you to catch up on missed payments or modify the loan, but only if you act before the account goes into default.

Alternatives to co-borrowing

If your credit or income does not may have access to you for a loan, you have other options. Some lenders specialize in loans for people with lower credit scores and do not require a co-borrower, though the interest rate will be higher. Credit unions often have more flexible lending standards than banks and may not require a co-borrower.

You can also work to improve your own credit before buying. Paying down existing debt, correcting errors on your credit report, and making all payments on time for several months can raise your score enough to may have access to alone. This takes time but saves you the risk of co-borrowing.

A larger down payment can also reduce the lender's risk and may allow you to borrow without a co-borrower. Saving an extra few thousand dollars before you buy can make the difference between approval and denial.

Frequently Asked Questions

Can I co-borrow with someone who is not a spouse or family member?

Some lenders allow it, but many do not. Banks and credit unions have different policies. Ask the lender directly before you apply. If they decline, try a different lender or credit union, as standards vary widely.

Does the co-borrower have to be present when I buy the car?

Yes. Both borrowers must sign the loan documents and title in person. Some lenders allow one borrower to sign electronically if they are out of state, but you will need to confirm this with the lender before you go to the dealership.

What if I want to buy a car but my co-borrower does not want their name on the title?

That is not possible. If someone co-borrows with you, their name must appear on both the loan and the title. If they do not want their name on the title, they cannot co-borrow. They could act as a co-signer instead, but that is a different arrangement with different legal consequences.

Will co-borrowing affect the co-borrower's ability to get their own loan?

Yes. The car loan appears on their credit report as debt they are responsible for. Lenders will count the full monthly payment toward their debt-to-income ratio when they apply for a mortgage, personal loan, or credit card. This can lower the amount they are approved to borrow.

Can we split the down payment between the two of us?

Yes. There is no rule about how the down payment is divided. You can each contribute what you can afford. Make sure you both understand who owns the car and how decisions about it will be made, since both names are on the title.