Many lenders in Canada offer personal loans with a cosigner or guarantor because it reduces their risk if you default on a loan. In turn, cosigners or guarantors can help the borrower get approved, typically at a lower rate. While using a cosigner or guarantor can seem like a no-brainer, there are some risks to consider before proceeding.
Keep reading to learn how getting a personal loan with a cosigner in Canada works, and compare lenders that accept cosigners or guarantors.
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A cosigner on a loan is an individual who agrees to pay your debt if you fail to repay it. Your cosigner has to be someone who’s financially independent from you and who meets the basic eligibility requirements for the loan. Because cosigned loans are less risky, they can help increase your chances of approval and get a lower rate.
In the eyes of the lender, a personal loan with a cosigner is less risky since the lender can collect funds from another person if the primary borrower stops making repayments.
The catch is that lenders will want the cosigner to have a strong credit score, usually higher than the primary borrower. During the application process, lenders will assess the cosigner’s finances the same way they assess the primary borrower’s finances.
Often, borrowers seek a cosigner because they may have trouble getting approved on their own. For example, a student with little to no credit history may ask their parents to cosign their student loans. Or, someone trying to rebuild their credit may ask a friend to cosign a personal loan.
A guarantor personal loan is one where someone promises to pay only if you default, so they’re a backup rather than equally responsible. A cosigned personal loan is one where the cosigner shares full responsibility from the start, and the lender can pursue them immediately if you don’t pay.
In theory, yes, it’s easier to obtain a personal loan with a cosigner or guarantor. Lenders like cosigners and guarantors because they have a second person to turn to if they have trouble collecting the debt.
However, if the cosigner or guarantor has bad credit, poor financial history or is otherwise perceived to be a risky borrower, your chances of getting approved won’t increase.
On the other hand, if the cosigner or guarantor is perceived to be an excellent candidate for lending, they may eliminate part of the risk for the lender. The reduced risk can lead to better odds of approval, more favourable conditions and even a better interest rate.
Eligibility requirements vary between lenders, but cosigners and guarantors usually need to meet the following:
Start by assessing your own financial situation to determine whether you even need a cosigner or guarantor. If you have low or unstable income, a debt-to-income ratio over 40%, no credit history or a low credit score, you may only qualify for a loan with high interest rates.
In that case, getting a cosigner or guarantor may be the best option for you, but you still need to determine how much you need to borrow and what monthly payments you can afford to make.
Once you know the loan amount you need, you can compare different lenders and financial products. For every loan you come across, be sure that cosigners or guarantors are accepted.
In most cases, the primary borrower and the cosigner/guarantor must provide the required documents to the lender. Government identification, proof of income and employment information are common requests. Be proactive in gathering this information from the cosigner to make the application process smoother.
Now, you’re ready to finalize your loan application online or in person. If the cosigner or guarantor is available, consider having them there with you when you apply, in case additional information is required.
Your chosen lender will review both of your credit profiles and financial details. If approved, the loan will be issued in your name, but the interest rates and terms will reflect your combined creditworthiness.
Review the agreement with your cosigner or guarantor and make sure you both understand the repayment schedule, interest rate and what happens in case of missed payments.
Get personal loans with a cosigner
Yes, the two terms are different. A joint applicant, sometimes referred to as a co-borrower, is a borrower who applies for a loan alongside another borrower equally. All joint applicants equally share the burden and benefits of the debt, which means that both can access the loan funds and both are responsible for paying it back.
No. A cosigner or guarantor is a close personal contact, like a friend or family member, who’s willing to manage your loan repayments on your behalf if you ever find yourself unable to pay. You can’t find an unknown cosigner or guarantor online in Canada because there are lots of risk and no benefits to cosigning a loan.
If you have bad credit, it’s unlikely you’ll get approved for a bank personal loan even if you have a cosigner with a strong financial profile. Banks have strict requirements. To get approved as the primary borrower, you’ll need to be an acceptable risk on your own. Instead, consider alternative online lenders.
As a cosigner, you only assume the liability of the loan and none of the loan’s benefits. If you want to assume the benefits of the loan too, you should be applying as joint applicants instead. The type of loan the primary borrower is seeking will affect the cosigner. In general, there are two main loan types: secured and unsecured. Consider the implications of each below.
Secured loanA secured loan requires collateral. A home, car or any asset with significant value could be used as collateral. Mortgages and car loans are common loans under this category. Secured loans are generally safer because the lender has an asset to seize if the borrower stops making payments or defaults.
With any loan, cosigners only assume the liability, but none of the benefits. This means if the primary borrower obtains a mortgage, car loan or other secured loan, the cosigner doesn’t own or possess any benefits of the purchased asset or collateral.
The cosigner is simply responsible for repaying the debt if the borrower fails to pay or defaults. Keep in mind that secured loans are actually safer for cosigners because the lender may repossess the collateral instead of turning to the cosigner if the borrower fails to repay or defaults.
Unsecured loanA loan with no collateral is an unsecured loan. These loans are perceived as riskier because the lender has nothing to seize if the borrower fails to pay or defaults. In addition, it’s more risky to the cosigner because there’s a greater chance that they will have to repay the loan in the worst-case scenario.
Similar to secured loans, the cosigner doesn’t reap any benefits from an unsecured loan. The cosigner only assumes the obligation to pay the debt.
That means if the borrower used the loan to go to school or make improvements to their home, the cosigner has no ownership or rights to the products or services bought by the borrower.
Money can cause a lot of strain on a relationship. Potential cosigners should ask the following questions before cosigning a loan:
If you’re looking for a personal loan and you have no credit and no cosigner, you can apply to alternative lenders that will shift their focus to other factors, such as your income and debt-to-income ratio.
If you have bad credit and no cosigner, there are alternative lenders in Canada that specialize in personal loans for bad credit. However, they charge higher rates to offset the risk of borrowers without cosigners defaulting.
To increase your chances of approval, you’ll need to show that your income can manage the loan repayments by providing recent bank statements and pay stubs. You also must have little to no non-sufficient funds (NSF) transactions in your bank account in the last 60-90 days or any active short-term loans.
Another alternative to getting a loan with a cosigner is to improve your odds of approval on your own by getting a secured loan.
In the Finder: Consumer Sentiment Survey January 2024, participants were asked to select up to three of the most important factors they consider when applying for a personal loan. Interestingly, 35% cited repayment flexibility as an important factor.
If you too are concerned about your ability to repay your loan, finding a trustworthy cosigner can help give you peace of mind.
Cosigners can help primary borrowers secure financing with better conditions and rates than if the borrower applied alone. This is especially true if the cosigner has great credit and an ideal financial position. However, as the risk for the lender decreases, the risk for the cosigner increases. The cosigner assumes a large financial responsibility when cosigning a loan — a decision that shouldn’t be taken lightly.
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