Car Loans for Minors: Can a Cosigner Help?

A car loan is a legally binding contract. In most states, the age to get a loan is 18 years of age, since it is a legal document. As a result, it is necessary for someone over the age of 18 to cosign on the loan and on the car title, which is also a legal contract. If a parent cosigns, you should have no problem obtaining a car loan because any loan age limit won't apply since they're over 18 years of age.

Tip

Teens under the age of 18 are not permitted to enter into contracts in most states. They will need a cosigner to obtain a car loan.

Understanding the Legality

The first step to obtaining a car loan as a minor is to ensure the loan is legal. For this, in most states, you will need to have a person over 18 years of age cosign on the loan. Typically, this is a parent, but it may be any individual willing to cosign on your loan including an aunt, uncle, mentor or friend.

This person is technically the individual with responsibility for the loan since he is the only one legally permitted to enter the contract at the time it is signed. If a lender offers to extend you a loan without a person over 18 present, you should be aware that this lender is not following the law.

Credibility of the Borrower

A second factor to consider is your status as a borrower, that is, your credit. If you are under the loan age limit, you are unlikely to have much credit history. Your credit score, even if you have never missed a payment on other debts you may have, will be low. If your age didn't legally necessitate a cosigner, your deficient credit history would be reason enough for a lender to require one on your auto loan.

Asking Parents to Cosign

Since both legally and financially you will need a cosigner, the best option is to approach a parent with the problem. Your parent can sign the loan with you, and you will still gain the benefit of owning the car and paying off the loan. If you default on the loan, however, your parent will be held responsible as well, and this can present a problem. Your parents will be wise to monitor your payments so their credit is not jeopardized.

Additional Considerations

Once you turn 18, you can legally remove your cosigner from the loan. You will have to apply for modification, and the lender may change the terms of the loan without a cosigner present. This may make modification unattractive because it can become more expensive. But through such modification, you will benefit greatly from the improvement to your credit score that results from paying off the loan on your own.