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money_talks
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Registered: ‎07-02-2013
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Does a high fico get better financing if cosigning with a lower fico?

Let's say a person has an 800 fico score. Would this person get better rates if cosgining with a person who has 500 fico score ? Also let's assume the 800 fico score person is the primary borrower.

 

From what I think the 800 fico would get better rates with the 500 fico since the bank now has 2 persons to go after in case the loan ever goes delinquent. Thoughts?

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HoldingOntoHope
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Re: Does a high fico get better financing if cosigning with a lower fico?

The answer is that it depends on the type of loan involved. In the case of auto loans or personal loans MOST institutions will base the loan rate on the higher FICO score. In the case of mortgage loans they will pull all 3 reports for both individuals then they will base the loan rate on the Middle score that is lower between the two.

 

Note that this may not be applicable for every lending institution but is based on the reported experiences of people within these forums. As with any loan your chances of approval or denial are based on more than just the credit score also.

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takeshi74
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Registered: ‎06-05-2013
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Re: Does a high fico get better financing if cosigning with a lower fico?

[ Edited ]

money_talks wrote:

From what I think the 800 fico would get better rates with the 500 fico since the bank now has 2 persons to go after in case the loan ever goes delinquent. Thoughts?


Seems like odd reasoning to me.  So do you think that two 500's cosigning would get better finacing than one 800?  I wouldn't expect the number of signers to matter -- especially when additional signers are higher risk.

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Kratos-TM
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Registered: ‎05-23-2013
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Re: Does a high fico get better financing if cosigning with a lower fico?

Very good question OP. I see exactly where you're coming from....

 

The question is basically balancing an extra party vs scoring.......which factor plays the biggest role......

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HoldingOntoHope
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Re: Does a high fico get better financing if cosigning with a lower fico?

Well assuming both parties have income to declare the lender is obviously going to look more favorably at the option of having a second party to hold responsible if the first party defaults. And as long as the co-signer has a decent credit score then the approval odds do go up. As the OP suggested if the second party has a lower credit score than the primary then at least the second party will benefit from the (hopefully) positive trade line.

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guiness56
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Re: Does a high fico get better financing if cosigning with a lower fico?

It also depends on who the primary borrower is.  My mom has an 829 score and was cosigning a vehicle for me.  They decided to use her as the primary to get better rates.  My score is nowhere near that.

 

 

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money_talks
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Re: Does a high fico get better financing if cosigning with a lower fico?

Thanks for everyone's replies!

 

So let's assume these scenarios (numbers are not accurate):

 

1) 800 fico applies for loan on his own = APR 3%

 

2) 800 fico applies for loan, cosign with 500 fico = APR still at 3% or less??? Or is it possible the APR increases?

 

So as you can see, by adding a second person in #2 (although with a poor fico), would a bank usually give a better/same/worst APR?

 

I would think in scenario #2 the APR might be more favorable because the bank has less risk as they can now go after a 2nd person if the loan defaults. If fico 800 defaults in scenario 1, the bank can't go after someone else. It does not make sense to me if the bank keeps the APR at 3% if the 800 fico remains the primary borrower as he could still get the 3% on his own. Throw in a 2nd party and again, the chances of the loan being repaid increases.

 

Thoughts?

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Simply827
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Re: Does a high fico get better financing if cosigning with a lower fico?

Generally, someone with an 800+ score will qualify for the best rates. No cosignor needed since having a score that high demonstrates a long history of stability and responsibility.


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HoldingOntoHope
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Re: Does a high fico get better financing if cosigning with a lower fico?

To Money Talks: In your scenario the APR would remain the same. Even though the second person does bring an additional person to go after there is no real advantage to the bank. They EXPECT the high score to pay their bill. FICO score is a predictor of risk. The bank would see no extra benefit, but the low score account holder would with a positive trade line.

 

Actual loan default rates on credit cards and auto loans, etc. are not that high. The banks have loosened lending standards since the dark days of the financial crisis but it isn't now and never will be a free for all - everyone's approved. The lending institutions are in it for profit and their databases have enough historical information that they can minimize their risk.

Best financial advice I ever got: "Just imagine what an adult would do and do that."

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money_talks
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Registered: ‎07-02-2013
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Re: Does a high fico get better financing if cosigning with a lower fico?

[ Edited ]

HoldingOntoHope: Thanks. Does it get a little trickier in this scenario? (or any scores not above 760 where both ficos are within a couple of points)

 

1) fico 650 applies on his own = APR 10%

 

2) fico 650 applies with cosigner of fico 630 = APR ???

 

Would the bank still give the same APR of 10% for scenario #2? Because now you have 2 people who don't have the best of credit that the bank can go after in case the loan defaults.

 

Also, what does "everyone's approved" mean in the context of this sentence?  "The banks have loosened lending standards since the dark days of the financial crisis but it isn't now and never will be a free for all - everyone's approved"


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