Having trouble getting a personal loan or qualifying for a good rate on your own? You may be in luck.
Getting your first car or starting college can be more than exciting. It can also be extremely frustrating if you don’t have much credit history. If you can’t afford to make a big purchase outright and your credit is nonexistent or less than perfect, you may be considering a cosigner.
Some of the roadblocks to getting a personal loan can be made more manageable with the addition of a cosigner. You can meet minimum requirements while also potentially getting better rates. A small stumble in your credit history doesn’t have to hold you back.
Top personal loan with cosigner: LendingClub
LendingClub offers loans of up to $40,000 as an alternative to bank loans. Rates from 5.99% to 35.89% APR based on your and your cosigner's credit history.
- Recommended Credit Score: 660 or higher
- Min. Loan Amount: $1,000
- Max. Loan Amount: $40,000
- Loan Term: 3 to 5 years
- Turnaround Time: Up to 7 days
- Total Costs: Depends on your credit score
- Consolidate loans or pay off high interest debt
- Confidential and secure online application
What exactly is a cosigner?
Simply put, a cosigner is someone who agrees to pay back your loan if you miss payments or default on it. Rather than relying on your credit history and score alone, creditors can take your cosigner’s financial history into account.
The addition of a cosigner reduces risk for lenders, as long as your cosigner has solid creditworthiness. Because a cosigner is intended to act as a guarantee against lost, lenders will consider your cosigner’s finances just as thoroughly as they investigate yours.
How does a cosigner differ from a guarantor?
Guarantor is a term you more often see associated with apartments or rentals, where only the primary applicant is living at the residence. It can be applied to loans as well.
Cosigners and guarantors differ, however. Cosigners are just as liable as you are for the loan from the get-go, whereas a guarantor is liable only after you default on the loan.
Is a cosigner different from a joint application?
In some cases, yes. The two are similar in that both put responsibility on the person who is applying with you. Joint applicants and cosigners are both fully liable for the loan on issue — the same as the borrower.
However, the two differ in that “joint” implies a level of ownership by the coapplicant over the disbursed funds and what’s purchased with it.
A selection of lenders that allow cosigners for personal loans
|Lender||Which loans can you apply for with a cosigner?||What are the conditions?|
|Bank of America||Auto refinance||Your cosigner must provide all of the same financial information as you on application, including: W-2s, tax returns, recent pay stubs and bank statements.|
|Chase Bank||Auto loans||The cosigner must provide the same required documentation when applying. The cosigner acknowledges and assumes equal responsibilities.|
|LendingClub||All borrowing reasons||The lender will consider both of your qualifications, including but not limited to, credit scores, income, debt-to-income (DTI) ratio and credit history. You and the cosigner will be equally responsible for repaying the loan|
|OneMain Financial||Secured and unsecured personal loans||If the main applicant relies on another person’s income, that person must be listed as a cosigner and assume responsibility for loan repayments with the main applicant.|
|Wells Fargo Bank||Auto loans, home equity finance||The cosigner can be a spouse, partner, relative, family friend or another who shares the loan responsibility.|
What a cosigner means for different loan types
Different loan types attract different meanings for cosigners when it comes to what you’re financing.
Implication for personal loans
When a person cosigns with you for a personal loan, they assume liability for the loan but aren’t entitled to any of the funds.
Implication for auto loans
The benefits as a cosigner for an auto loan are limited. If they’re not listed on the title, they don’t have any ownership. Being listed on the title takes the individual from cosigner to joint applicant.
Implication for student loans
Cosigners are common on student loans because parents often agree to be legally responsible for their child’s loan payments. Since young students may not have established credit history, a parent cosigner can help them borrow the amount they need to pay for school.
Implication for mortgages
Like an auto loan, unless the cosigner is listed on the property title, they aren’t a co-owner of the property. Should you default on your mortgage, the property is security for the loan. The cosigner isn’t transferred any type of ownership.
Implication for business loans
For business loans — especially for riskier businesses — cosigners may be asked to provide collateral. Even in this case, the cosigner doesn’t hold any ownership of the business due to the loan.
How to apply for a loan with a cosigner
- Compare your options. You can start by reviewing the lenders listed in the table above. Keep in mind that lenders may not accept cosigners for all of its loan types. Be sure that the loan type you’re interest in applying for is eligible for cosigners.
- Prepare your financial documents. Both you and your cosigner should have the documents required by the lender. These can include W-2s, bank statements and employment information.
- Apply together online. If the person who’s agreed to be your cosigner is available, consider having them there with you when you apply online. It can ease the process in case any specific application questions are asked that you’re unsure of.
Is it easier to get a loan with a cosigner?
It depends. The reason a cosigner can be effective is that they minimize risk for the lender. If your cosigner doesn’t minimize risk — if they have a poor credit score or a rocky financial history — they may not make the approval process any easier.
On the other hand, if they have stellar credit, they may eliminate some of the risk for the lender. That reduction of risk can then potentially increase the odds of you being accepted for a loan and even get you a better rate that you would’ve been offered otherwise.
While eligibility varies based on the lender, a few qualifications tend to be universal:
- Must be 18 years of age or older (19 in Alabama)
- Must have an established credit history
- Must demonstrate an ability to repay the loan through regular income and low debt-to-income ratio
Benefits and drawbacks of applying with a cosigner
- Potentially bolsters your chance of approval
- Can make you eligible for lower interest rates
- It can affect your cosigner’s credit
- Double information is required since two people’s eligibility needs to be assessed
- It can put a strain on your relationship with your cosigner if you default
- If your cosigner’s credit isn’t good enough, you could still be rejected
There are attractive benefits when it comes to applying for a loan with a cosigner. Finding a provider that meets your needs and allows cosigners can potentially result in easier acceptance and a better interest rate.
It’s important to for you and your cosigner to know your credit scores before applying. This can help you quickly narrow down your options to loans you could qualify for and what rates to expect.
Frequently asked questions about cosigners
How can I get a guarantor instead of a cosigner?
You may be able to negotiate with a lender that accepts cosigners to make your cosigner a guarantor. The process of doing so works by adding a section to the terms that identifies the cosigner as liable only if you default on the loan.
What if I don’t know anyone who can cosign for me?
You can research services that match borrowers with cosigners. You might also be able to consider extended family and friends of friends, though keep in mind that any late payments could affect their credit history as well as yours.
Will my cosigner be able to make online payments, if needed?
Depending on the lender, your cosigner may be able to pay on your behalf. You might want to check with the provider ahead of time if you think it could be an issue.