Banks Won't Take My Out of State Auto Loan Cosigner

by Virginia B.
(Chicago, IL)

Question: The banks won't take my out of state auto loan cosigner even with her excellent credit. Here's what happened...

I filed for bankruptcy last year (discharged in Nov 10). Since then I have gotten a great job and was in the market for a new car. My credit is in the low 600's. My Mom said she would cosign with me (she has perfect credit).

I have applied for loans at two different dealers and was very upfront that my Mom would be cosigning with me so that I could get the best possible rate.

I also told both upfront that my Mom lives in California (I'm in Illinois) and asked if it would be a problem - both times I was told no worries.

After my Mom and I gave them our information, I received a call saying that I had been approved on my own (at 13.9% interest!) and that they "couldn't" use my Mom since first I was approved on my own and second, she lived out of state.

I have researched and researched and have found nothing about this! I didn't think a lender could tell you that you cannot have a cosigner - or that there is an issue with an out of state cosigner!

One dealer was a Volvo dealer and the other a Ford dealer. I had $2K to put down, a trade in
and my income is $110K/year.

Any thoughts would be appreciated! This is making me crazy! (I walked away from both cars).


Bankruptcy? No Problem!
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Answer: Hi Virginia,

I'm going to start from the bottom up and say that 13.9% is a very good rate for just having a bankruptcy discharged fiveish months ago.

This is a great deal and I would think that it will ultimately turn out to be your best bet, unless you are willing to wait until your bankruptcy gets a bit older. I'm assuming it was Ford Motor Credit that gave you this approval.

Adding a cosigner to an auto loan nowadays has changed somewhat and the prime lenders really only consider it necessary to have a cosigner when someone is a first time buyer with limited credit, more than a way to help someone get prime rates that has had some credit issues.

On top of that, many lenders will not allow out of state auto loan cosigners.

I'm going to paraphrase what a lender once told me regarding a situation similar to yours and I don't mean any insult with this, but this is the way they look at....

"Come on, the guy is forty years old and makes $60k a year, but didn't pay his bills and now wants mom to bail him out on his interest rate. Sorry, but I'll have to pass!"

Seems sort of rude, but that is how they look at cosigners under these circumstances.

What you may want to consider doing is to buy whichever car you wanted and take the 13.9% approval. Pay on this for awhile to reestablish your credit and let your bankruptcy get 18-24 months old.

At that time, you can look to refinance at a much lower rate (assuming your score goes up and credit stays on a good track) shortly down the road. Refinancing is typically pretty easy and should be free.

How’s your credit score? 0-600 Poor, 601-680 Fair, 700-774 Good, 775+ Excellent. Find out your Score now FREE!

Hope this helps and I certainly hope you understand that the example I gave above was not a shot at you or your current situation, but was a real conversation I had with a real lender about a customer in a similar situation as you...

Take care,

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