Which Spouse Should Apply for an Auto Loan?
When you get married, making financial decisions become twice as complicated. Merging finances can tread into even murkier territory if one spouse has better credit than the other. When applying for an auto loan, many married people put the loan in the name of the spouse with the better credit in order to qualify for a better interest rate. Or they may apply jointly in order to qualify for a more expensive car. Unfortunately, these strategies can also have unintended consequences if things don’t go as planned.
When deciding how to apply for an auto loan with your spouse, you have to consider one important fact. You may not always be married. No one wants to plan for the possibility that they will get divorced. If you consider the fact that your marriage is probably the most significant business relationship you have, however, it only makes sense to plan for the possibility that it might end. When applying for and taking out loans, you have to keep this in mind.
If you take out an auto loan jointly with your spouse (or cosign), you will be equally responsible for paying off that debt with your spouse. If the marriage ends and you keep the car, your credit will be fine so long as you make the payments. If your spouse ends up with the car and fails to make payments, however, your credit score will be negatively affected (perhaps without you even knowing it).
If you put the loan only in your name, you will be solely responsible for paying off that debt. From a practical perspective, it makes the most sense to only put your name on an auto loan for a car that you will be driving even after a divorce. That way, if your marriage were to end, you wouldn’t be stuck paying for a car your spouse took off in.
In families where there is a wide income discrepancy between spouses, it may be impossible for each spouse to apply for a car loan individually. If one spouse has no income or a very low income, the other spouse may have to apply for the loan in his or her name or cosign for the loan. The same is true if one spouse has bad credit or no credit. If you sign for an auto loan for your spouse, however, it’s important that you stay closely involved with the payments. If you manage separate finances, check to make sure that at least the auto loan with your name on it is paid on time. You have to be prepared to take over payments if your spouse is unable to if you want to protect your credit. If you are not in a position to take over those payments, it may not be a good time to take out an auto loan. Use the Auto Loan Calculator at manybanking.com to help you determine how much an auto loan will cost you each month.
To shop for and compare rates on auto loans, use the Auto Loan Rate Search at manybanking.com.
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