Can Spouses Combine Incomes for Auto Loans?

By John Hayden

Financially savvy couples know that combining incomes when applying for an auto loan is a great way of getting a better deal. The auto financing experts at Hayden Auto Loans are well aware that joint incomes speed up credit approvals, with lower interest rates and better vehicle choices. But when picking a car, double the input often means it’s twice as hard to find a model that meets the needs of both borrowers. That’s why it’s important to draw up a written list together, with must-have and would-like features. Four-wheel-drive? Electric? Easy to park?  Next comes the financing: how much? how long? down payment? interest?.

Will My Spouse’s Bad Credit Affect My Loan?

It’s important to note that both your names will be listed jointly on the vehicle financing documentation. So if you have a solid credit history but your spouse is still climbing out of a financial hole, you might worry about whether their lower credit score will impact your joint financing application. It will, as you are both jointly liable for the loan. However, if you apply for a loan on your own, only your personal credit score and income are taken into consideration, although you and your less-liquid spouse may pool your incomes.

Benefits of Combining Incomes for Auto Loans  

Usually shared by two spouses (the primary borrower and the co-borrower), joint auto loans list both on the title.  Furthermore, both hold ownership rights to the vehicle. This means that both of you are equally liable for the loan.  Worse still, if one fails to pay, the other’s  credit score also takes a hit. This is why fiscally responsible couples check out the best market conditions as soon as they start looking for their next set of wheels. They sit down and discuss all the possible ripple effects of their joint auto loan. Then they draw up an emergency action plan, should the financial situation of either of them change.

Upsides of a Joint Car Loan

If one spouse fails to qualify for a car loan at an economically feasible interest rate, it makes good sense to add a spouse as a co-borrower. Combined incomes for an auto loan offer four major benefits:

  • Credit boost: if one spouse’s credit track-record is better than the other, paying off a joint auto loan promptly as policy effects on both credit scores
  • Income boost: adding your wages together makes financial sense, when one spouse’s income is too low, or payment-to-income and debt-to-income ratios are too high;
  • Family boost: many couples contribute to big-ticket purchases for family use, particularly for automobiles, which are often treated as family assets;
  • Condition boost: a joint auto loan application often leads to better loan conditions, particularly interest rate;

Downsides of a Joint Car Loan

Like any other transaction, joint auto financing gets tricky when storm clouds gather over the relationship. As both parties are liable for meeting the payments and share asset ownership, it may be necessary to remove the name of a spouse from the loan documentation. The only way this can be done is through refinancing – and that means that the newly single signatory must comply with the lenders credit and income requirements. Spouses unable to qualify on their own must find another co-signer, in order to ensure approval of the new loan.

Pro Tip: Particularly for joint auto loans, far-sighted planners should include a no-penalty early termination clause, in case the spouses need to restructure the deal.

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