Need my income with a car loan co-signer?

Dear Driving for Dollars,
I am a server in a restaurant. I make good money when you count my tips, but on paper my income is much less, so I am having a hard time getting a good interest rate on a car loan. I think I have a friend with great credit and a good income to co-sign for me. How much does my income matter with a co-signer?
— James

Dear James,
When you get a co-signer for a car loan, that person’s income, credit score and history are taken into account. In short, the lender will be looking at your friend’s ability to repay the loan entirely on his or her income and credit profile. If the friend has the income and credit that you say, you should be approved for a better interest rate than on your own.

If you decide to go with a co-signer for your car loan, make sure your name is on the sale paperwork and car title as the owner, alone, if possible, or at least listed first. Also, make sure the loan paperwork lists both of your names, with your name listed first or as the primary. This way, you are asserting your ownership and rights to the car, which will help, should there be a problem with the co-signer.

However, keep in mind, the credit being established through this car loan is being recorded on both of your credit reports.

Having a co-signer on an auto loan can be a slippery slope if any problems in your relationship arise. You might want to consider finding another way to purchase a car, such as saving your money for a larger down payment, so the loan amount is more in line with your reported income.

You also might want to look at whether your credit score can be improved, which should help you get a better interest rate on your own. For tips, read Bankrate’s “Fix your credit before seeking a car loan.”

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