At a Glance
Getting approved for a personal loan can be difficult if you have no credit or bad credit. If you don’t qualify for a loan on your own, you can apply with a cosigner or coborrower.
What is a cosigner?
A cosigner is a trusted friend or family member who helps you apply and get approved for a loan. When cosigning on a loan, they are essentially taking legal responsibility for paying the loan back if you are unable to. When you have a cosigner, their credit score and other factors are also considered when determining whether your loan is approved.
Related: Why a Good Credit Score Matters
Why do you need a cosigner?
Lenders have certain requirements you must meet in order to get approved for a loan, such as a minimum credit score or income requirements. If you don’t have a great credit score, credit history, income, or other reason making it difficult to get a loan, a cosigner can help the lender feel more comfortable giving you the loan. Because someone else is pledging to repay the loan if you don’t, the loan is considered less risky.
Even if you have a fair or good credit score, a cosigner may help you qualify for a lower interest rate.
How does a cosigner work?
When you get a loan with a cosigner, they agree to take legal responsibility for that loan along with you. This means they agree to make monthly payments, adhering to the repayment terms, if you stop making payments. They are legally liable for the debt, so if you don’t pay it back, they have to.
Even though they are liable for the debt, they do not have legal rights or ownership to anything purchased with the money. For example, if you use a personal loan to purchase a used vehicle, they don’t have rights to that vehicle.
When you have a cosigner, the loan appears on their credit report as well as yours. And, if you miss payments, both your and your cosigner’s credit history will be impacted.
Who makes a good cosigner?
Not everyone makes a good cosigner, and no one is required to agree to be one. A cosigner can be a friend, family member, or spouse, and they should:
- Have great to excellent credit (at least 680 or above, but the higher the better).
- Be able to afford the monthly loan payments if you’re unable to make them, and prove they have sufficient income to make those payments.
- If they have low debt, and understand by cosigning, they are taking on more debt and their credit score and history will be impacted, and their debt-to-income ratio (DTI) is also increasing.
Ideally, the cosigner has a DTI less than 40% before taking on additional loans, so calculating that beforehand can be helpful.
What to consider before getting a cosigner
Asking someone to be a cosigner is a big ask, and it’s a big responsibility and possible risk they are taking on. There are several things to think about before asking someone to be your cosigner:
- Understand the financial risk you both are taking on. A loan is debt, and while you may apply for a loan believing you’ll be able to make the payments on time each month, sometimes life happens and circumstances change, leading to late or missed payments. While missing one payment doesn’t seem like the end of the world, it doesn’t just impact your credit score – it will also affect your cosigner. And, it will stay on both of your credit reports for seven years.
Your cosigner agrees that if you miss payments, they will make them for you. They may end up having to pay off the loan in full in order to prevent it from going to collections or accruing fees or penalties. If your cosigner can’t pay, the debt will be sent to collections.
- They may always be on the loan. Removing your cosigner from the loan, called a cosigner release, means you’re releasing them from the responsibility of the loan. Once they are removed, they are no longer held accountable to paying it off if you can’t. However, not all lenders offer this ability, and you may have to refinance or consolidate your debt instead. Depending on the loan term, they may be impacted by this debt for a long time.
- Not all lenders allow cosigners. Most places you’d get a loan, including banks, credit unions, and online lenders, allow cosigners. However, some don’t, so if you think you’ll need one, be sure to do your research first.
- Consider your relationship. Whether you ask a friend, family member, spouse, or someone else, it’s important it’s someone you trust but you should also carefully consider the relationship. The cosigner should be someone that will be in your life for a long time, and who has a history of managing their money appropriately. You should also consider what would happen and how your relationship would be impacted if they end up having to pay off the loan.
Best practices for taking out a loan with a cosigner
There are ways to avoid potential problems with cosigners. Keep these in mind when you’re applying and throughout the terms of the loan.
1. Consider alternatives
Before even exploring the option of getting a loan with a cosigner, you’ll want to explore all of your opinions for financing and consider alternatives. That way, you have covered all your bases before asking someone to cosign, especially because it’s such a big responsibility.
You should also get prequalified for loans to see if you qualify without a cosigner.
2. Choose the right person
Asking someone to be a cosigner on a loan can be daunting, especially because you’re asking them to take legal responsibility for this loan and pay it back if you can’t. Be sure you choose someone you can trust and who trusts you, and that has excellent credit and/or a strong income. This will improve the chances of your application getting approved.
3. Lay out the details
Talk to your cosigner. Make sure they understand the risks involved, the payment requirements, and the impact on their ability to borrow in the future. Even if you have the best intentions to pay off the loan, surprises can arise. Make sure the cosigner can comfortably make payments if you’re unable to for any reason.
4. Communication is key
If you know you’re not going to be able to make a payment, reach out to the cosigner and discuss the best way to move forward before the payment is actually due. Not only can this help prevent damage to your credit, but it can also help prevent an even more uncomfortable conversation later.
The cosigner may choose to help you make the payment rather than have you miss making the payment. A missed payment can lead to fees and hurt both of your credit scores.
What’s the difference between a cosigner and coborrower?
A coapplicant can not only improve your chances of being approved, but also help you get a lower interest rate or higher loan amount.
Both cosigners and coborrowers can act as that coapplicant, though the terms are slightly different. A lender looks at both your credit history and income as well as the credit history and income of either a cosigner or coborrower to approve or deny your loan request.
A cosigner backs your personal loan while you alone are responsible for repayment. The cosigner takes the financial risk if you default on the loan. Essentially, the cosigner assures the lender that someone will repay the loan if you don’t.
A cosigner does not have access to the money you’re borrowing or information about the loan, like whether you’ve missed a payment.
A coborrower is a joint applicant on the loan who will share the funds. A coborrower is also responsible for making monthly payments.
How to find a cosigner or coborrower
Your cosigner or coborrower should be someone with good to excellent credit. On the FICO credit scale, an excellent credit score is anything over 800 (850 is the highest score possible). 700 or higher is typically considered a good credit score.
Family members or close friends are often the most likely to cosign a loan with you because they’re taking on an element of risk. If you stop making payments or miss a payment, your cosigner or coborrower is responsible and their credit can suffer.
Of course, there’s also risk involved on your end. Borrowing money from family or friends can strain relationships. Make sure you find the right person, or consider alternatives to adding a coapplicant.
Pros and cons of adding a cosigner
Pros and cons of adding a coborrower
How to compare personal loan lenders allowing a cosigner
Before applying for any loans, it’s important to do your research and compare different lenders that allow cosigners to get an idea of if you qualify and what you qualify for. When possible, get prequalified (which won’t impact your credit score) for a more personalized estimate of interest rates, monthly payments, terms, loan amounts, and other details.
When comparing lenders, a few factors to consider include:
- APR: Annual percentage rate combines the loan’s interest rate with fees and other costs associated with the loan. Look for a lender with the lowest APR you can qualify for.
- Minimums: Know if you meet the lender’s minimum credit score, income, and other requirements.
- Fees: Some lenders charge origination fees, late payment fees, prepayment penalties, and others.
- Loan amounts: Make sure the lender offers the loan amount you need, but also only borrow as much as you need and no more.
- Term: Shorter terms mean you pay less interest, but the monthly payment is higher. Longer terms have lower monthly payments but accrue more interest over time. Choose a term that you can afford.
- Application, approval, and funding process: Completing these online can make the process faster. Compare approval and funding times and processes.
- Customer service: Read reviews and ratings on sites like the Better Business Bureau, and from current and past customers. Make sure the customer service team meets your needs in the event you have questions or need help .
How to apply for a personal loan with a cosigner
Applying for a personal loan with a cosigner is very similar to how you’d apply for one without a cosigner. After you’ve gotten prequalified, compared lenders, and found the right one for you, the next step is to gather the following documents, either in hard copy or digital format:
- Valid State Driver’s License or State ID
- Proof of current employment (paystubs)
- Valid checking account for direct debits
- Most recent W2 or 1099
Getting this information ahead of time can make the application process easier. Then, you’ll fill out the application (either online or in person). Answer the questions and provide the requested information, including the income, employment information, and others for both you and your cosigner.
If you’re approved, the lender will send you the loan terms and conditions, which you should carefully read, accept and sign. The lender will then transfer the funds to your bank account, and you’ll start making the monthly payments to repay the loan.
Alternatives to getting a loan with a cosigner
Getting a loan with a cosigner isn’t the right move for everyone, and the good news is there are alternatives available:
- Wait. If you don’t need the financing immediately and can wait to apply for the loan, using that time to improve your credit score, that may be the most ideal situation. Be sure to pay your bills on time and try to pay down debt to increase your score. The higher your score, the more likely you are to be approved for a loan without a cosigner.
- Borrow less. In some cases, reducing the amount that you’re applying for can help improve your odds of getting approved. For example, while lenders may not feel confident that you can repay $25,000, they may feel better about loaning you $10,000.
- Apply for a secured loan. Most personal loans are unsecured, but if you don’t have great credit, a secured loan can be an option. These loans are backed by collateral, which can be an asset like a house, car, savings account, or other asset of value. If you don’t repay the loan, the lender can seize that collateral, meaning they are taking on less risk by approving your application.
- Use a credit card. Depending on the amount you need to borrow, you may be able to use a credit card to pay for it. However, you don’t want to carry a large balance on your card because it will quickly accrue interest, so look for a 0% introductory APR credit card. These cards don’t charge interest for an intro period of 12-24 months, and you can carry a balance without being charged. Keep in mind the balance should be paid off before the intro period is over, though, because otherwise you’ll be hit with a big interest charge.
Yes, it’s generally easier to get a loan with a cosigner. That’s because a cosigner must have great to excellent credit and a steady income, making giving you the loan less risky for the lender. Plus, they are taking responsibility for paying back the loan if you can’t.
Typically, both borrowers and cosigners are required to provide the same information, including proof of income or employment information. Cosigners will also need to meet the credit score requirements.
Yes, it’s best that a cosigner has great to excellent credit (680 and above). The higher their score, the more likely it is that they will be accepted as a cosigner and your application will be approved. If a cosigner doesn’t have good credit, they won’t be much help to you.
Typically no, lenders require cosigners to have both great credit and income. Otherwise, the lender may not feel the risk is worth it.
Yes, the loan you cosign for will show up on your credit history and will affect your debt-to-income ratio. Additionally, if payments are late or missed, that will affect your credit score.
Yes, a cosigner’s credit score will be impacted by taking out the loan and cosigning. It will also be negatively impacted if a payment is late or missed.
If you can’t pay back your cosigned loan, your cosigner is legally responsible to repay it. They must start making the monthly payments until the loan is paid off in full. Otherwise, the loan will go to collections.