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Getting a car loan in India can be a herculean task if you are a new borrower or one with low credibility. In that case, having a co-signer can be a smart move as it will help you in acquiring a car loan easily. Having a co-signer by your side can ensure banks and other financial institutions about your credibility and compensate for your low credit score. The co-signer guarantees that the installments will be paid on time by the other person in case you fail to do that. In this write-up we have summarized the benefits and some basic prerequisites that must be met while co-signing a car loan deal:
Benefits of Using a Co-Signer
Helps to get a low-interest rate- Since the interest rates are based on borrower's credit risk, having a co-signer will put you in a better position to qualify for a low-interest rate.
Chance to improve your credit score – Taking out a car loan and making the payments on time can help improve your credit score over time. Once your credit score has improved, you likely will not need a co-signer the next time you need to finance a vehicle.
Acts as a motivator- If you have a co-signer, he/she will motivate you to make the payments on time. Also, if you are not attentive towards the payments or tend to miss the payment dates, he/she is being a responsible individual will bring it to your notice before the situation becomes unmanageable.
Basic Eligibility Requirements to become a Car Loan Co-Signer
Below given are the basic requirements for co-signing a car loan:
Willingness to sign the loan agreement- A person who wants to become a co-signer must be firm in the decision of taking the responsibility. To ensure this, the banks and NBFCs have mandated co-signers to sign a contract, wherein they need to pledge that they take the guarantee to pay the pending amount, in the event of default. Please note, no verbal agreement or oral promises are accepted. The guarantee must be in written form only. Also, the person needs to agree with all the terms and conditions put forth by the bank and then give his/her consent for the same on paper.
Must have a close relationship with the borrower-This criteria varies from one financial institution to another. While some of the banks and other financial institutions may allow unrelated people or distant family members to become a car loan co-signer, but some lenders are there who have very strict terms and conditions as they allow only those individuals as co-signers who share the same residential address with the borrower. As a proof, they would require the utility bills addressed to the guarantor. Usually, people having a blood relation with you such as your family members or close friends can become co-signers.
A decent credit rating- The person you are choosing as your co-signer must have a good credit history. Generally, a credit rating of 750 or above is required to get approval for a co-signer to your loan. A person having a strong credit rating is a credible person who can shoulder the responsibility well.
Must have regular income and payment ability- The co-signer you have chosen must have a steady source of income. To check their repayment capacity, they need to provide their income proofs to the banks and other NBFCs in the form of salary slips, bank statements, and other related documents.
Residence and employment stability proof- Though this is not a mandatory criterion for co-signing a car loan agreement, some of the financial institutions want the co-signers to furnish their employment proof and residence stability. Co-signers who have a constant cash flow and permanent address are the most preferred ones as they can easily rely on such persons and feel that their money is in the safer hands.
So, these were some of the basic requirements for co-signing a car loan in India. Meeting only these basic requirements is not enough for becoming eligible as a co-signer. A co-signer will also have to be financially disciplined and must be aware of his/her responsibility before signing the loan agreement. Moreover, the credit history and the credit record of the guarantor will get negatively affected if the payments are missed and it will be boosted in the case of consistent and timely payment.