Adding a cosigner to your personal loan application could significantly improve your chances of approval, especially if your cosigner has a strong credit history. A cosigner could also help you qualify for a lower interest rate and a larger total loan amount.
However, a personal loan with a cosigner is a bit trickier to find and apply for than a typical personal loan. Read on to learn more about how to get a personal loan with a cosigner.
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What is a cosigner?
A cosigner on a personal loan is someone who shares legal responsibility for the loan repayment, but does not have access to the loan funds. If the primary borrower defaults, the cosigner must take over payments. If both parties fail to make payments, their credit scores could be negatively impacted. Additionally, continued missed payments may lead to legal action from the loan company.
During the application process, the cosigner’s credit is checked with a hard credit pull. The cosigner must also provide other information, including proof of identity (e.g., a valid government-issued photo ID), Social Security number, proof of address and proof of income.
Note that a cosigner is not the same as a co-borrower. A co-borrower shares financial responsibility for the loan repayment and also has access to the funds. This arrangement is also known as a joint loan.
How to get a personal loan with a cosigner
Find a cosigner and talk about loan specifics
To find a cosigner, look to people who trust you, such as family members or close friends. Keep in mind, however, that this person is signing on for a major financial obligation. Should you miss payments, your relationship with this person could be negatively affected.
Once you’ve found a willing cosigner with a strong credit profile, discuss the potential loan amount and terms with them to ensure mutual agreement on what is or isn’t acceptable. You should also talk to your cosigner about what might happen if you’re unable to make loan payments. Make sure your cosigner fully understands the financial commitment involved in cosigning a loan.
Additionally, be aware that while some personal loan lenders allow cosigners to be removed after a set amount of time, many don’t permit this at all. To remove a cosigner, you may need to refinance your personal loan as an individual borrower.
Check your credit report and debt-to-income ratio (DTI)
Before applying for a personal loan, find out where you stand in terms of eligibility. Many lenders require a minimum credit score of 580, while others have stricter requirements. You can check your credit report for free once per week with the three major credit bureaus (Equifax, Transunion and Experian). Be sure to check both your credit score and your cosigner’s credit score.
Lenders also consider your debt-to-income ratio(DTI), which indicates what percentage of your monthly income goes towards debt payments like bills or credit cards. Most lenders prefer a DTI of 40% or lower. Calculate your DTI using Money’s debt-to-income ratio guide.
Shop around for the best personal loan rates
Compare personal loan rates from various reputable lenders, including national banks, credit unions and online lenders like digital banks and peer-to-peer lenders. To find out if a lender accepts cosigners, look to the company’s FAQ page online or contact customer service.
When evaluating loan options, consider the starting annual percentage rate (APR), but also look at repayment terms, loan fees and funding time. Our guide to the best personal loans can help you get started.
Note that there are two types of personal loans: secured and unsecured. Secured loans require collateral in the form of valuable personal property, such as a house, car, stocks or bonds, while unsecured loans do not. In addition, secured loans often have lower rates, but the risk of losing personal property may outweigh the benefits for some borrowers.
Prequalify for a personal loan with a cosigner
When you apply for prequalification with a lender, you receive potential loan rates and terms without undergoing a hard credit check. This allows you to compare rates across several lenders without impacting your credit score.
However, most online loan applications are designed for individual borrowers, so you may not be able to enter your cosigner’s information. To get a prequalified rate that includes your cosigner’s details, you may need to contact a loan company representative directly.
Apply for a personal loan with a cosigner
Choose the best prequalified rate for you and formally apply with that lender. Make sure you have all the necessary documents for both parties, including government-issued photo IDs, proof of income, proof of address and Social Security numbers. Lenders may also request bank statements from your checking and savings accounts.
A formal application involves a hard credit inquiry for you and your cosigner, so expect a slight drop in your credit scores as a result.
Review the loan agreement and accept the offer
When evaluating loan terms, be sure to look at:
- Annual percentage rate (APR) - The interest you’ll pay on the loan, including the interest rate and any associated fees.
- Fees - Find out if you’re being charged an origination fee or loan processing fee.
- Fixed interest rate or variable interest rate - A fixed interest rate won’t change over the life of the loan, while a variable interest rate could go up or down.
- Funding time - Some financial institutions offer same-day funding or funding on the next business day, while others may take up to a week to disburse funds.
- Late fees - Find out how much the lender charges for late payments.
- Loan amount - The total loan amount should reflect any fees.
- Loan term - The longer your repayment term, the more interest you’ll pay overall. However, a shorter loan term results in higher monthly payments.
- Prepayment penalty - Some loan companies charge a fee if you repay your loan before the loan period ends.
- Repayment terms - Payments may be monthly or weekly. Additionally, some lenders offer a discount for automatic deductions from your bank account (also known as autopay).
If any of the terms feel unacceptable to you, consult with a customer service representative. Remember that you are under no obligation to accept a loan offer.
Get funded and begin repayment
Depending on the personal loan company, you could receive funding within 24 hours of loan approval. However, some lenders may take up to a week to disburse funds.
Your payments typically begin about 30 days after you receive the loan proceeds. Review your repayment schedule to ensure it aligns with your personal finance goals — some lenders allow you to choose the day your monthly or weekly payments are made.
Pros and cons of a personal loan with a cosigner
Pros
- Improve chances of qualifying for a loan
- Potential for a better interest rate and lower monthly payments
- Bump up your credit score by making consistent on-time payments
Cons
- Could damage your relationship with the cosigner if you fail to make payments
- Cosigner’s access to subsequent credit or loans may be negatively impacted if their debt-to-income ratio becomes too high
- Narrower selection of lenders, as not all personal loan companies accept cosigners
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How to Get a Personal Loan With a Cosigner FAQs
Why would a borrower get a cosigner for a loan?
A borrower may opt for a cosigner for a loan when their own creditworthiness isn’t strong enough to secure a personal loan. Most borrowers who add a cosigner choose someone with a strong financial history, including good credit and a low debt-to-income (DTI) ratio.
Where can I get a personal loan?
What is the correct definition of a cosigner for a loan?
What is the average personal loan interest rate?
Where can I get a personal loan with bad credit?
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