How applying with someone else can help you qualify for a better rate.
If you can’t afford to make a big purchase outright and your credit is nonexistent or less than perfect, a cosigner might be able to help you get the financing you need. Applying with a friend or relative is a way to meet minimum eligibility requirements while also potentially securing a better rate. But your options might be limited since not all lenders allow them.
How does getting a loan with a cosigner work?
Getting a loan with a cosigner works by having both the borrower and the cosigner equally responsible for paying back the loan. A cosigner is someone who agrees to pay back your loan if you miss payments or default. Rather than relying on just your credit, lenders will also take your cosigner’s financial history and credit into account when reviewing your application.
The addition of a cosigner reduces risk for lenders — as long as your cosigner has solid credit. Because a cosigner is intended to act as a guarantee against loss, lenders will review your cosigner’s finances just as thoroughly as they reviewed yours.
How does a cosigner differ from a guarantor?
Guarantor is associated with apartments or rentals where only the primary applicant is living at the residence, although it is also used with personal loans on occasion. The main difference is that a cosigner is responsible for late or missing payments as well as loan default, whereas a guarantor is only responsible if you default.
Is a cosigner different from applying jointly?
Yes, but both do put responsibility on the person who is applying with you. Joint applicants — also known as coapplicants — and cosigners are both fully liable for the loan should you default. However, a joint application implies a level of ownership by the coapplicant over the disbursed funds. A cosigner usually has little to no say in how the loan is used.
Compare top cosigner loans
What are lenders’ conditions for cosigners?
|Lender||Which loans can you apply for with a cosigner?||What are the conditions?|
|LendingClub||All borrowing reasons||The lender will consider both of your qualifications, including but not limited to, credit scores, income, debt-to-income (DTI) ratios and credit histories. 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.|
|SoFi||All borrowing reasons||You can apply jointly with another member of your household. You’ll both share the responsibility of paying back the loan.|
|FreedomPlus||All borrowing reasons||The lender considers two incomes, lowering your DTI and ultimately your assessed risk to the lender. Both applicants agree to apply for joint credit.|
|Bank of America||Auto refinance||Your cosigner must provide all of the same financial information as you on the 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 responsibility.|
|Wells Fargo Bank||Auto loans, home equity finance||The cosigner can be a spouse, partner, relative, friend or another person who shares the loan responsibility.|
Benefits and drawbacks of applying with a cosigner
- Potentially improves your odds of approval.
- May make you eligible for lower interest rates.
- If your cosigner’s credit isn’t good enough, you may still be rejected.
- Could affect your cosigner’s credit if you default.
Is it easier to get a loan with a cosigner?
It depends. A cosigner can be effective because they minimize risk for the lender. If your cosigner doesn’t minimize risk — that is, if they have a poor credit score or rocky financial history — they may not make the approval process any easier.
On the other hand, if your cosigner has stellar credit, they may increase the odds of you being accepted for a loan. And they may even be able to score you a better rate than you would’ve been offered on your own.
While eligibility varies based on the lender, a few qualifications tend to be universal:
- Be at least 18 years old — 19 in Alabama and Nebraska, 21 in Mississippi.
- Have an established credit history.
- Demonstrate an ability to repay the loan through regular income.
- Have a low DTI ratio.
How to apply for a loan with a cosigner
Applying with a cosigner is very similar to applying by yourself. Follow these steps:
- Compare your options. You can start by reviewing the lenders listed in the table above. Keep in mind that a lender may not accept cosigners for each of its loan types.
- Prepare your financial documents. Both you and your cosigner should have the documents required on hand to make the process faster. 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. This way, they can answer any specific application questions that you’re unsure of.
3 questions to answer before applying for a loan with a cosignerCosigning a loan is a big responsibility for your friend or relative. If you don’t make your payments or default, your cosigner is on the hook for paying back what you borrowed.
Before applying, answer these questions about your financial situation and ability to repay the loan:
- What is the loan for? Your cosigner will likely want to know why you’re taking out a loan. Financing a vacation is much different than consolidating your debt, and you’ll need to be clear with your cosigner before you apply.
- How much are you borrowing? A small loan is easier to repay than a large loan. A lower amount is more attractive to a cosigner because you’re less likely to face default and if you do, they’ll be on the hook for less money.
- How often will payments need to be made? Knowing how often you’ll need to pay down your debt is important. Most lenders require monthly payments and give you the option to make additional payments at no cost. This can impact your cosigner — after all, they’ll have to pay if you don’t — so be sure you can make regular payments.
What a cosigner means for different loan types
The type of loan you’re considering will have different implications for cosigners when you borrow. Usually, this is based on the amount you need to borrow, the terms and the loan’s purpose.
- 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. Some people may not be willing to put their name on the line for a personal loan.
- 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 makes the individual a joint applicant, not a cosigner.
- 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 a credit history, a parent cosigner can help them borrow the amount they need to pay for their education.
- Mortgages. Like an auto loan, unless the cosigner is listed on the property title, they don’t own the property. If you default on your mortgage, the property is security for the loan. The cosigner isn’t transferred any type of ownership.
- Business loans. For business loans — especially for riskier businesses — cosigners may be asked to provide collateral. The cosigner doesn’t hold any ownership of the business, but still risks losing their collateral if you default.
Essentially, a cosigner provides backup in case you’re unable to pay back the loan, but they don’t enjoy any benefits from assuming that type of risk. While getting a cosigner can be a handy tool if you can’t qualify by yourself, you need to be sure you’re able to handle what you borrow before asking someone to risk their finances on your loan.
Finding a provider that meets your needs and allows a cosigner can potentially result in easier acceptance and a better interest rate. However, you and your cosigner should discuss the terms of the loan before applying. This ensure you both know what’s expected of you before signing the dotted line.
Learn more about how personal loans work by reading our comprehensive guide.