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How are Interest Rates Determined when Cosigning?

Established Member

How are Interest Rates Determined when Cosigning?

I am planning on cosigning on an auto loan for my 18 year old son who has no credit at all, only because I think it would be good to help him build his credit. He will be the main applicant, and I will be the cosigner. 

 

My FICO auto credit scores are all hovering around 743, 733, 740. 

 

Will the interest rate be based off of my credit scores, or will they be solely based on his lack of credit of his own (therefore, giving us a higher than preferrable interest rate)?

11/2018
FICO 8 Scores:
EQ: 718, TU: 707, EX: 710
FICO Mortgage Scores:
709, 685, 700
GOAL: 760 across the board by 2022 to prepare for a mortgage.
5 REPLIES
Frequent Contributor

Re: How are Interest Rates Determined when Cosigning?

Hello,

 

First off, it will be simply a joint loan in which both of you are financially responsible for the repayment of the loan, and you will both hold ownership of the vehicle. You will not be just a "co-signer" it will be a joint loan, and more than likely you will be listed first on the legal paperwork/title work since you are the one with an established credit history.

 

Secondly, as far as APR's it really depends on the lender. Some lender's will not accept co-signer deals, some will... some lender's use a complex algorithm to determine your tiering for APR's based on multiple inputs. Some lender's simply use a rate sheet that assign's a specific rate based on the collateral year/mileage/ltv/term.

 

So to answer your question, if you find the right lender, or the dealership you visit has a competent Finance Manager, you should not get stuck with a high APR based on your son's lack of credit.

AMEX BCE ($39,500) CITI AAdvantage ($20,500) Region's Platinum Card ($14,400) Discover IT ($23,000) Macy's ($7,000) Chase FU ($10,000) Barclay's Aviator ($22,000) TU:778 EX: 781 EQ:791
Message 2 of 6
Established Member

Re: How are Interest Rates Determined when Cosigning?

I am planning on going to a local Credit Union to finance the vehicle. It is a used vehicle. Pre-2012. I found out through their website that although I qualify for their lowest interest rate, their auto loan APR's for used pre-2012 vehicles are a bit high (8-9%). I am planning on going there this week to find out more. Thank you. Your answer was very informative.

11/2018
FICO 8 Scores:
EQ: 718, TU: 707, EX: 710
FICO Mortgage Scores:
709, 685, 700
GOAL: 760 across the board by 2022 to prepare for a mortgage.
Message 3 of 6
Frequent Contributor

Re: How are Interest Rates Determined when Cosigning?


@gWalker92 wrote:

I am planning on cosigning on an auto loan for my 18 year old son who has no credit at all, only because I think it would be good to help him build his credit. He will be the main applicant, and I will be the cosigner. 

 

My FICO auto credit scores are all hovering around 743, 733, 740. 

 

Will the interest rate be based off of my credit scores, or will they be solely based on his lack of credit of his own (therefore, giving us a higher than preferrable interest rate)?


Might I just adding him as an AU to one or a couple of you well established cards to give him some type of credit score. Personal Experience Mom did this for me and when we went to local cu I had a 692 and she was a 780 and i got a 2.74 rate on a 2010. I would look around your area for some other CUs or banks that offer lower rates. 

Message 4 of 6
Moderator Emeritus

Re: How are Interest Rates Determined when Cosigning?

Generally with joint applications for auto loans they go with the higher of the two score sets.

 

Doesn't have to be that way as it's lender by lender, but it's usually the case anecdotally; this is exactly opposite of the mortgage space where it's always the lower of the borrowers for 99% of the lenders.




        
Message 5 of 6
Frequent Contributor

Re: How are Interest Rates Determined when Cosigning?

I would shop somewhere else for an auto loan, 8-9% is too high even for an "older" vehicle. My CU offers 4.19% up to 63 mo's on ANY model year older than a 2015 with a 740+ TU score.

AMEX BCE ($39,500) CITI AAdvantage ($20,500) Region's Platinum Card ($14,400) Discover IT ($23,000) Macy's ($7,000) Chase FU ($10,000) Barclay's Aviator ($22,000) TU:778 EX: 781 EQ:791
Message 6 of 6