Co-signing a car loan can allow someone with bad credit or no credit to purchase a vehicle or qualify for a lower interest rate than would be possible alone. If you have good to excellent credit, you can co-sign loans for family members and friends. You can even co-sign multiple car loans at the same time. However, co-signing comes with significant financial risks.
Qualifying as a Co-signer
Not everyone can qualify as a co-signer for a single car loan, let alone multiple loans. Lenders typically require co-signers to have credit scores of at least 700, as high scores demonstrate a long history of on-time payments and few credit history blemishes. Additionally, co-signers usually need to have proof of their ability to pay the loan should the primary borrower default. That means proving they have enough income to make the monthly payments.
Hypothetically, you could co-sign on as many loans as you wanted. However, every loan you co-sign will show up as a liability on your credit report. To co-sign a second or a third loan, you could need to prove your income is sufficient to cover all the loans if the borrower defaults. If you only make $60,000 per year, for example, your income might be sufficient to cover one or even two car loans. It might prove difficult to co-sign on a third loan.
Risk of Default
As a co-signer, you are on the hook for unpaid loan obligations if the primary borrower defaults. If your friend or family member fails to make payments, you'll be financially obligated to step up with the cash. That's why lenders might not allow you to co-sign multiple loans if you can't prove you have sufficient income to cover them all.
Credit Implications
Because every loan you co-sign shows up on your credit report, each loan makes it at least a little more difficult to qualify for the next. Co-signing increases the total amount of money you owe, which accounts for 30 percent of your credit score. It also increases your debt-to-income ratio, which is a key measure banks use to assess your creditworthiness. Co-signing one loan could make it much harder for you to co-sign a second loan or to borrow money for yourself.