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What Is a Personal Loan With a Cosigner?

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Susan Guillory

Susan Guillory

Updated June 11, 2021
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Personal Loan With Cosigner: How to Apply & What It Is; Looking for personal loan with cosigner? Adding a cosigner can help you qualify for a loan, find out more about cosigned loans with our guide!
When you’re looking for personal loans, you may discover that you don’t qualify as an applicant. That might be because your credit score is too low, you don’t make enough money, or you don’t have any collateral to put down (in the case of a secured loan).So should you give up? Not necessarily. You might be able to get a personal loan with a cosigner. Having someone else sign the loan documents (and share the responsibility for that loan) along with you could be just what you need to qualify for low rates and great terms.

What is a Cosigner?

Typically, when you apply for a loan on your own, you sign loan documents taking full responsibility for paying that loan in full. But when you don’t qualify for a loan with great rates on your own, you may be able to add a cosigner. A cosigner is another person who will agree to take on that loan responsibility with you. In theory, even if the loan is yours, if you can’t pay it back, your cosigner agrees to be responsible for doing so.

Advantages of Working with a Cosigner

Taking out a personal loan with a cosigner could help you get a loan you wouldn’t otherwise be able to get on your own. Lenders who offer small personal loans typically want to lower the risk that you, as a borrower, won't pay back the loan. If you don’t have established credit or much income, the lender may consider you a risk.But bringing on a cosigner—who might be a parent, spouse, or friend who has established credit—instantly, lowers the risk to the lender. The lender may even offer you lower rates and more favorable terms. That’s because now you’re pooling both your cosigner’s qualifications and your own in the application process.If you don’t have good credit, taking on this loan with a cosigner may help you build it, as long as you pay your monthly payments on time and that’s  reported to credit bureaus. As your credit score grows, you may qualify for other types of financial products, like credit cards. 

The Difference Between a Cosigner and a Co-Borrower

To clarify, a cosigner is not the same as a co-borrower.The term cosigner means that the person who is also signing your loan documents is not also taking on the debt. A co-borrower is someone who takes out a joint personal loan with you, uses the funds with you, and pays back the money with you.When you get a personal loan with a cosigner, the cosigner is there to guarantee that the debt will be paid in the event that you can’t pay it yourself. It may never come to that. Ideally, you’ll be able to make your loan payments on time and in full for the duration of the loan. But lenders like to see that there’s a safety net in case that doesn’t happen.

How Does Using a Cosigner for a Personal Loan Work?

Once you’ve found someone willing to be your cosigner, you can apply for the loan you want. In the application, you’ll be asked questions about both your income and your cosigner’s, and you may also be asked for both of your Social Security numbers. This will help lenders verify your credit scores.Once you’ve been approved for an unsecured personal loan with a cosigner, both of you will need to review and sign the loan agreement stating that you are both responsible for paying back the loan (or that the cosigner is responsible if you don’t do so on your own).

Who Makes a Good Cosigner?

The question is who do you know who has good credit and is willing to take on the responsibility of a personal loan with you? It is a risk, and it can impact the cosigner's credit.Parents are often the first option, especially if you’re young and looking to establish your own credit. Your parents may be more established financially, and they may be more likely to have the qualifications that lenders look for.If you’re married, you might ask your spouse to be your cosigner. A close friend is another option.Whoever you choose, have a frank conversation about what cosigning entails. Offer a look at your finances to show that you’re able to pay back the loan, and discuss what would happen if you couldn’t. Cosigners typically don’t expect to actually have to pay for the loan, so if your cosigner is suddenly on the hook for a $500 payment in a few months, it could be stressful!

What Are the Risks to Consider Before Getting a Cosigner? 

When you apply for personal loan with cosigner programs,  the cosigner is taking the biggest risk. A cosigner might end up having to pay for your loan, which could be a financial hardship. Additionally, that loan automatically appears on the cosigner’s credit report and will contribute to his or her debt to income ratio. If your cosigner decides to apply for a loan or credit card down the road, his or her credit report will likely show the loan, which could make it harder to qualify for more funding. Your cosigner’s credit score may also take a dip if you don’t pay back your loan on time (as will yours, also).But realize there’s also a risk for you when you take out a personal loan with a cosigner. You’re putting your personal relationship on the line. If you can’t pay back your loan and your cosigner has to take over payments, that may cause a strain in your relationship. There’s a reason why many people decide against borrowing money or doing business with friends or family. It can threaten otherwise healthy relationships.

What Cosigners Should Consider Before Signing On

From the cosigner’s perspective, choosing whether or not to cosign your loan is a big decision. Cosigning on a loan affects the cosigner’s own credit, so it’s important to make sure your cosigner knows what to expect. Don’t be upset if the person you ask refuses to cosign. It’s a decision that can have long-term implications for the cosigner’s credit and ability to borrow money for years.Encourage your potential cosigner to do his or her own research, but do pass along the basics of what you’ve learned here. Let the cosigner know that this loan will appear on his or her credit report.Above all, your cosigner needs to be aware that, if you miss a payment, he or she will be responsible for making that payment. If that doesn’t happen, your credit score and your cosigner’s could drop.Your loan will also appear as debt on your cosigner’s credit report. If your cosigner plans on, for example, taking out a mortgage or car loan in a year, there might be difficulties because his or her debt to credit ratio would be too high because of the cosigned loan.In addition, here are a few questions to make sure you address together.
  • What will we do if you can’t make a payment?
  • When will the loan be paid off?
  • What are you willing to do to ensure you make your payments on time?

What to Do If You Don't Have a Cosigner

Not everyone has someone who can (or is willing to) act as cosigner. In that case, you have a few more options.
  • Wait. The first is to be patient while you build your credit. You can do that by opening a credit card and paying your balance in full and on time. That activity will be reported to credit bureaus and, over time, may build your credit history and be reflected in your credit score.
  • Settle for a smaller loan. You could also consider borrowing less money. Sometimes you only need a cosigner if the amount is over a certain threshold. Could you make do with less money, especially if it means you could pay off the loan faster (also helping your credit)?
  • Look into secured loans. Consider whether you have any assets you might be able to  put up as collateral for a secured personal loan. That could be real estate, your car, or a savings account.
  • Shop around. There are many different types of personal loans (we’ll cover more in the next section), and different lenders have different qualifications for applicants, so you may find that you qualify for a loan elsewhere, even if it is at a higher interest rate. You’ll have to decide if that high rate is worthwhile to get access to cash.

Alternatives to Getting a Loan with a Cosigner

If a personal loan with a cosigner isn’t an option because you can’t find someone willing to be your cosigner, you can explore these other options.
  • Personal loans for bad credit. The lenders who offer these loans will look at other qualifications besides your credit score. These loans may be for lower amounts and may have higher interest and fees, but they may help you rebuild your credit so that later, you can qualify for better financial products.
  • A personal loan for a car. This may be an alternative to an auto loan if you’re looking to buy a car. These loans may offer better rates than other options because the car can serve as your collateral. If you find yourself unable to pay back the loan, the lender could seize your car to cover what you owe.
  • A credit card, secured or unsecured. People with bad credit or not much credit history may only qualify for a secured credit card, which requires a cash deposit from you. If you make your payments on time, you may eventually qualify for an unsecured credit card, which doesn’t require that security deposit.

Build Your Credit to Qualify for Better Financing

No matter which financing product you choose, it’s a good idea to keep an eye on your credit score.If you’re making on-time payments and reducing your debt, you’re likely to start seeing upward movement. It takes time to build your credit, but as you do, you will probably qualify for more types of loans and credit cards, and the rates that lenders offer you will likely get better and better. One day, you may not even need a cosigner!

The Takeaway

Having a cosigner on a loan may be what you need to qualify for better rates and start to build (or rebuild) your credit. Just be aware of what this means for both you and the cosigner, because if you aren’t able to pay your loan, you could put that person in a difficult situation. Only take out a loan (with or without a cosigner) if you’re fully confident you will be able to make your monthly payments on time for the duration of the loan term.Exploring all your options may also help you find a better loan. At Lantern you can compare personal loan rates from multiple lenders all in one place so you can easily make a decision about what works best for you.
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website on credit (https://www.consumer.ftc.gov/topics/credit-and-loans)The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.SOLC0421046

Frequently Asked Questions

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About the Author

Susan Guillory

Susan Guillory

Susan Guillory is the president of Egg Marketing, a content marketing firm based in San Diego. She’s written several business books, and has been published on sites including Forbes, AllBusiness, and Cision. She enjoys writing about business and personal credit, financial strategies, loans, and credit cards. Follow her on Twitter @eggmarketing.
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