Nobody disputes that spouses should make major financial decisions — such as purchasing a car or refinancing an auto loan — together. A more complicated question is whether spouses should be on a car loan as cosigners. Although having a spouse cosign on your car loan might make sense in some instances, it can be a risky personal and financial move in others.
Purchasing a new car is an exciting event, but it also requires some big financial decisions. One of those is determining whose name should go on the car loan – yours, your spouse’s, or both of your names jointly. There are good reasons for and against putting both spouses on the car loan, so it’s important to weigh the pros and cons carefully before making this choice.
Pros of Having Both Spouses on the Car Loan
Here are some potential benefits of having both you and your spouse on the car loan
1. May Qualify for Better Rates and Terms
If your spouse has excellent credit, adding them to the loan could help you qualify for a lower interest rate and better loan terms overall. Lenders look at the applicants’ credit scores, income, and existing debt levels when making loan decisions. If your spouse boosts these qualifications, it improves your chances of getting approved and securing favorable rates and terms.
2. Makes Payment Responsibility Clear
When both spouses are borrowers on the loan, it clarifies that you are both equally responsible for making the monthly car payments on time This avoids potential confusion over who is expected to make the payments.
3. Helps Build Credit History
If your spouse has little or no credit history, being a joint borrower on the car loan is a way for them to establish a credit record. Timely monthly payments will be reported to the credit bureaus under both names, helping build your spouse’s credit score. This can be useful down the road when applying for other loans.
4. Provides Backup if Income Changes
If your income were to be reduced due to a job loss or other circumstances, having your spouse jointly obligated on the loan gives you a backup payer. They could cover the monthly payment using their income until you regain financial footing.
5. May Be Required for Some Loans
Some lenders may require both spouses to be co-borrowers on a car loan, especially if you live in a community property state. Review loan requirements carefully so you know if a joint application is mandatory or optional.
Cons of Having Both Spouses on the Car Loan
On the other hand, there are also some potential drawbacks to joint spousal car loans in certain situations:
1. Both Credit Scores Impacted if Problems Arise
If the loan payments are made late, your spouse’s credit score will take the same hit as yours. Defaulting on the loan would also negatively impact both of your credit.
2. Shared Liability in Divorce
In case of divorce, a joint car loan remains shared responsibility. The loan obligation has to be addressed as part of the separation of marital assets and debts.
3. May Not Actually Improve Loan Terms
If your spouse has poor credit or a high debt-to-income ratio, adding them to your application may not help your rate or approval odds Be sure their finances are in good shape before assuming joint status is beneficial.
4. Removes Individual Ownership
With both names on the loan, the car is equally co-owned. If your relationship were to sour down the line, this joint ownership could require some untangling.
5. May Hamper Future Borrowing
Taking on joint auto loan debt impacts the debt-to-income ratio used in future loan applications for either spouse. Even if only one of you drives the car, both spouses’ borrowing ability is reduced.
Tips for Deciding Whether to Add Your Spouse
How do you decide what’s best for your situation? Here are some tips:
-
Compare credit scores and debt levels. Will your spouse’s finances strengthen or weaken your application?
-
Discuss who will be the primary driver and pay the monthly bills. Does joint responsibility align with how you manage finances?
-
Calculate the impact on debt-to-income ratios for each of you. Will co-borrowing restrict future individual borrowing?
-
Review divorce laws in your state regarding joint debts. Understand the implications in case of separation.
-
Ask lenders about the specific benefits of adding your spouse. Don’t just assume joint status gets better terms.
-
Consider relationship outlook. If you have concerns about longevity, joint obligations may be risky.
-
Weigh the importance of building your spouse’s credit. Is that a priority worth the trade-offs?
alternatives to Joint Spousal Car Loans
If you decide joint borrowing isn’t the best fit, here are a few potential alternatives to consider:
-
Have your spouse co-sign the loan – They would still provide their credit standing to potentially improve terms, but the debt obligation and car ownership would be in your name only.
-
Take out the loan under only your name – If you qualify for good rates solo, individual borrowing may be the simplest option.
-
Use two separate loans – You could each take a loan for half the car value and make payments on your respective debts.
-
Save up and buy in cash – Avoid financing completely by paying for the full car price upfront in a lump sum.
No approach is one-size-fits-all, so carefully weighing the pros, cons, and alternatives helps ensure your loan structure aligns with your financial situation and relationship outlook. Discuss options honestly with your spouse and decide what puts you both in the best position for the future. With teamwork and good communication, you can make smart joint borrowing decisions.
The Risks of Being a Cosigner
The risks of being a cosigner are significant. If you cosign a debt, and the original borrower doesn’t make payments on time, here’s what can happen:
- The lender can require you to start making payments on the debt.
- The lender can initiate collection proceedings against you, including a lawsuit.
- Your credit score can be damaged.
In addition, cosigning a loan increases your debt load, impacting your credit score. This affects your ability to obtain a credit card, take out a loan for your own needs or qualify for good interest rates on goods and services. Because of these risks, you might want to check out other alternatives that can help you buy a car or refinance a car loan.
What Is a Cosigner?
A cosigner agrees to pay a loan if the primary borrower defaults. When someone cosigns a loan, they assume responsibility for making loan payments if the original borrower falls behind on repaying the debt. Once the primary borrower defaults on payments, the cosigner is responsible for paying the balance of the loan, along with any fees related to the late payments. Also, the lender now treats the cosigner as the debtor.
Cosigners are not quite the same as co-borrowers. Co-borrowers apply for a loan together so that they can purchase (or refinance) an asset that they both own and use. When a married couple takes out a mortgage on a home that they both live in and own, they are co-borrowers.
A cosigner, on the other hand, assumes responsibility for paying someone else’s loan. The cosigner does not co-own the asset that the loan was used to purchase.
If you co sign for a car loan, should your name be on the car title too?
FAQ
Should husband and wife both be on auto loan?
Should I add my spouse to a car loan?
Is it better to finance a car jointly or separately?
Is it better to have a co applicant on a car loan?
Can a spouse get a car loan together?
In most cases, co-borrowers are spouses. Spouses often apply for a car loan together to try to qualify for a larger loan amount, and so both borrowers get their names on the vehicle’s title. Since spouses may have combined expenses and resources, lenders typically require co-borrowers to be life partners or spouses.
What happens if you split with your spouse on a car loan?
If you and your spouse split at any point and you still have the car loan together, you’re both still responsible for the debt. This can get dicey in the face of animosity or squabbles over finances and bills. If you have a car in your name only, you and only you are responsible for the payments.
Should you co-borrow a car if you’re married?
Co-borrowing might make more sense, as would having the spouse with the best credit apply for the loan. In some households, however, only one spouse drives and will have ownership of the car. Many people owned a car before getting married and could want to refinance that vehicle without putting their spouse on the title.
Should a married couple take out a joint car loan?
Makes more sense – Many married couples combine funds on big-ticket items, and it simply makes sense to jointly apply for a car loan if they plan on sharing the vehicle and payments. Deciding to take out a joint auto loan isn’t always sunshine and rainbows.
Should you cosign a car loan if you’re married?
Since you’re married, it’s likely that you both stand to benefit from a new car, credit card, or home loan. Your spouse would have greater incentive to cosign on a loan than another relative or trusted friend would. A cosigned loan could weigh quite heavily on both your combined credit histories.
Should you cosign a car with your spouse?
Having your spouse as a cosigner might seem counterintuitive: You share finances and will both benefit from an automobile purchase or refinancing. Co-borrowing might make more sense, as would having the spouse with the best credit apply for the loan. In some households, however, only one spouse drives and will have ownership of the car.