What To Know When Adding a Cosigner to a Loan
If you need a personal loan but don’t qualify because of your credit, applying with a cosigner could help. A cosigner could also open the door to lower interest rates and better terms.
But adding a cosigner to your loan can be tricky, and so can finding a lender that allows one. To smooth out the process, here’s everything you need to know about adding a cosigner for a personal loan.
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How to get a personal loan with a cosigner
A cosigner is someone you add to your personal loan as a guarantee for the lender. You and your cosigner have equal responsibility for the loan. As such, if you make late payments, both of your credit scores will suffer — and if neither of you pay back the loan, the lender can sue you both for default.
However, as long as you hold up your end of the deal, your cosigner has nothing else to do with your loan and they won’t have legal rights to your loan money.
Adding a cosigner reduces the lender’s risk, especially when your cosigner has a strong credit history. In turn, the lender may approve your loan application even if you don’t meet its personal loan requirements. A cosigner can also help you qualify for a lower annual percentage rate (APR) and/or higher loan amount than if you applied on your own.
Once you’ve found a willing (and creditworthy) friend, family member or business partner, you might find the best personal loan with a cosigner by following the steps below:
Check your credit scores
Your credit score isn’t the only thing that can make or break your ability to get a personal loan, but it’s often the most significant factor that determines your eligibility and APR. Both you and your potential cosigner should check your credit scores before shopping for a loan.
Knowing your credit scores can help you narrow down the list of lenders you should apply to and determine whether the interest rates they’re offering are competitive for your borrowing profiles.
Gather documents for you and your cosigner
When you apply for a personal loan, the lender will ask you and your cosigner to provide copies of documents like your driver’s license (or another type of government identification), paystubs or W-2s. These will serve as your proof of identity, employment and income.
Getting these documents ready in advance can help reduce the back-and-forth between you and your cosigner (especially if you don’t live in the same household).
Prequalify
If you’re applying with a cosigner, you’re probably already working on improving your credit. But applying for a personal loan generally requires a hard credit pull, which can cause your credit score to drop. To get a peek at the rates you may qualify for without a credit ding, get prequalified for a loan.
Prequalification doesn’t hurt your credit score, as it only requires a soft credit check. Think of prequalification like a quote — it doesn’t guarantee approval, but it can give you an idea if you and your cosigner are eligible for a loan and at what terms.
With a few clicks, you can check rates with up to five lenders on LendingTree’s personal loan marketplace. Save time and see how much you could qualify for today!
Apply
After you’ve picked a lender, you’ll need to complete a loan application. You’ll answer questions about yourself and your cosigner, and provide the documents you previously gathered.
How long it takes to get a personal loan will depend on several factors. The approval process on cosigned loans tends to be a little longer, since the lender has to evaluate two people’s creditworthiness instead of one. Keep this in mind if you’re on a tight schedule.
Begin repayment
Once you’re approved, your funds could be available between one business day and a week — this varies by lender. Most of the time, the lender will deposit your funds directly into your checking account, and your first loan payment will be due about 30 days after your loan is disbursed.
Common cosigner requirements
Choosing the right cosigner is essential if you want to qualify for a personal loan with the best rates and terms. Typically, your cosigner should have:
Good-to-excellent credit: Your cosigner is your backer, so it makes sense that they should have strong credit. An excellent credit score is best, but try to aim for at least good credit or above (so a score of 670 or higher).
Steady income: Your cosigner has to make monthly payments on the loan if you can’t. For this reason, your lender will want to see that your cosigner has steady (and sufficient) income.
Acceptable debt-to-income ratio: Part of qualifying for a personal loan is demonstrating to the lender that you and your cosigner bring in more money than you owe (also known as debt-to-income ratio).
U.S. citizenship or permanent residency: Most lenders require applicants and cosigners be U.S. citizens or permanent residents. In addition, they’ll need to be at least 18 (or the age of majority in your state).
Pros and cons of using a cosigner for a loan
| Pros | Cons |
|---|---|
More likely to be approved. Adding a cosigner could boost your odds of personal loan approval. Better loan terms. Cosigners can help unlock lower APRs or higher loan amounts that you may not have qualified for on your own. Improved credit score. Adding a cosigner to get a loan and then making on-time payments can improve your credit score. | Damaged relationship. You could put your relationship with your cosigner at risk if you don’t pay back your loan. Limited lender selection. Not all lenders offer cosigned personal loans. Removing a cosigner can be difficult. You might have to make years’ worth of on-time payments before you can remove your cosigner (if you can remove them at all). |
Where to find a personal loan that allows cosigners
Not all lenders allow applicants to include cosigners, so you may need to do a little shopping around.
If your bank offers personal loans, you may want to give them a try since you already have an established relationship. Credit unions also tend to offer low APRs to their members, and yours might offer cosigned loans. Some online loan lenders allow cosigners, but more often than not, they offer joint personal loans instead.
When including a cosigner could be a good idea
If you’re building (or rebuilding) credit: For some, adding a cosigner is the only way to qualify for a personal loan. By taking this route and then making your payments on time, every time, you’ll be working your way toward a higher credit score.
If you’re in a financial emergency: Because you can use them for nearly anything, an emergency loan can be a lifesaver in the face of the unexpected. But depending on your credit profile, you might need to add a cosigner to get one.
If you’re a freelancer: It’s common for a freelancer’s income to fluctuate. Using a cosigner with a stable income could help lenders feel more confident that your loan will be repaid.
If you’re taking out private student loans: You can’t include a cosigner on most federal student loans, but that’s not the case with private loans. Young adults typically have thin or no credit, so most private student loans require cosigners.
Alternatives to cosigned personal loans
If you can’t (or don’t want to) add a cosigner to your personal loan application, you could still find funding by exploring the alternatives below:
Joint personal loan
It’s easy to get cosigned loans and joint personal loans confused, but they aren’t the same thing. Unlike a cosigner, the person you include on a joint personal loan (called the co-borrower) has equal rights to the loan money. For that reason, many people purchase shared items with a joint personal loan.
Just like cosigned loans, adding a creditworthy co-borrower to a joint loan can make it more likely that you’re approved and can allow you to access better loan terms. Plus, many lenders that don’t allow cosigners offer joint loans instead, which could widen your lender pool.
Secured loans
If you don’t qualify for a traditional personal loan, a secured loan may be worth considering. Secured loans require borrowers to offer collateral to make up for less-than-perfect credit. However, if you default on the loan, the lender can seize your collateral. Secured loans can be risky, so make certain you can repay the debt before putting your valuable items on the proverbial table.
Bad-credit personal loans
Some lenders specialize in personal loans for bad credit. These loans have less strict eligibility requirements, but also come with higher-than-average APRs. Although these loans are more expensive, they can be handy in a pinch.
If you’re interested in a bad-credit personal loan, know and recognize the signs of predatory lending. Unscrupulous lenders exist and are ready to take advantage of borrowers in desperate situations — but if you do your research, you can find reputable lenders willing to offer loans to borrowers with poor credit scores.
Frequently asked questions
Yes. Your loan will show on your cosigner’s credit report as debt, which could affect their ability to get more loans in the future (at least until this one is paid off). On-time payments could improve your cosigner’s credit score, but the inverse is also true — late payments will likely cause their credit score to drop.
Maybe — your ability to remove a cosigner from your loan agreement will depend on whether your lender offers a benefit known as cosigner release. To qualify for cosigner release, you usually need to make a certain number of on-time payments. If cosigner release isn’t an option, you’ll need to refinance your personal loan and have it written in your name only.
Cosigners can be anyone, from trusted friends or family members to business partners. You should pick someone who you trust and who trusts you in return. Remember, your cosigner is responsible for repaying the loan if you’re unable to — making late (or no) payments is likely to cause a rift in your relationship.