You can use a personal loan for many things, including debt consolidation, home renovations, or financing big-ticket items. But if you have limited income, a low credit score, or a short credit history, it might be difficult to qualify for a personal loan on your own. If that’s the case, one solution is to look into cosigner personal loans.
A cosigner is someone — usually a creditworthy spouse, family member, or friend — who agrees to take responsibility for the loan if you fail to make payments. Having a cosigner on a personal loan could boost your approval odds, especially if the cosigner has good credit and steady income.
A cosigner could also help you get better terms and interest rates since lenders consider their financial and credit information alongside yours when underwriting the loan. Not all personal loan lenders allow cosigners, so be sure to check the lender’s requirements before applying for one.
When you apply for a personal loan with a cosigner, they’ll either complete their own formal loan application or add their information to yours. This application can be filled either online or in person. Either way, the lender will then review each of your submitted information to determine whether to approve or deny the application based on the risk involved — and their requirements.
You’ll need to meet certain eligibility criteria to qualify for a loan, which can vary across lenders. These typically include:
Some lenders have more lenient lending requirements. For example, you may be able to get a personal loan with fair or bad credit. However, these loans often come with higher interest rates and less favorable terms. A lower credit score or higher DTI ratio could also make it harder to get a larger loan. We’ll explain more about DTI ratios later in this article.
The cosigner acts as a guarantor for the loan, meaning they’ll be responsible for making payments if you can’t. Because of this, personal loans with a cosigner can reduce the overall risk to a lender, making them more likely to approve the loan — with potentially better terms and lower interest payments.
If you make the monthly payments on time and repay the loan in full, you could also improve your credit score over time.
Related: Learn more about getting a personal loan on Credible.com
If you’re looking for a cosigner for a personal loan, it’s a good idea to compare different lenders. The following six lenders are Credible partners that accept cosigners on your loan application.
To find the “best companies,” Credible looked at loan and lender data points from 10 categories to give you a well-rounded perspective on each of our partner lenders. Here’s what we considered:
Here’s how to find the right cosigner for your personal loan:
- Choose someone you trust
A cosigner should be someone you know and trust. After all, they’re sharing responsibility for the loan with you. It helps to choose someone who can also help keep you accountable for making payments on time.
- Make sure the cosigner’s credit and/or income are significantly better
A cosigner backs the loan and reduces risks for the lender. Because of this, it’s generally a good idea to choose a cosigner who exceeds the lending requirements. The better their income and credit, the better your approval odds, terms, and rates.
- Consider your debt-to-income ratio
Your DTI ratio is the percentage of your gross monthly income you put towards debts like housing expenses, credit cards, and other loans. Say, for example, you spend $1,500 a month on debts and mortgage or rent. If you make $3,500 a month (gross), your DTI ratio is 43%.
Many personal loan lenders prefer a maximum DTI ratio of 36% to 43%. The lower your DTI ratio, the better your approval odds.
- Get prequalified
Prequalification gives you an idea of how much you could qualify for — and at what rates — without affecting your credit score. To prequalify, you’ll typically need to provide your contact information, personal details, income, and employment information. The process can often be done online before completing the formal loan application.
- Understand the risks and obligations
It’s important to understand the risks and obligations that come with taking on a personal loan. Talk with your cosigner, and make sure you both know the consequences of doing so.
- Consider alternatives
A cosigned personal loan isn’t right for everyone, so consider the alternatives. Options include taking out a line of credit or getting a peer-to-peer loan.
Another option is to ask a friend, spouse, or family member for a loan that will be your sole responsibility. Iron out the loan details — loan amount, repayment term, and interest (if any) — in advance to avoid future conflict.
Applying for a personal loan with a cosigner could boost your approval chances, but it does come with certain risks. Here are the main disadvantages of taking out a loan with a cosigner:
Weigh the potential risks and advantages of taking out a cosigned personal loan beforehand to help prevent future problems.
No, you don’t have to add a cosigner or co-borrower to a loan if you meet the lender’s eligibility requirements. A cosigner can increase your odds of getting a loan, but you might not need one if you have good credit, a low DTI ratio, and steady income.
If you miss a payment, or are late by a few days, your lender will typically charge a late fee. If you still don’t pay after 30 to 60 days, the lender could report the missed payment to the credit bureaus, which could hurt your credit score.
Yes, if the cosigner has great credit and verifiable income, applying for a loan with them could make it easier to qualify.
Cosigners don’t need a specific credit score, but it’s a good idea to find one whose credit score is 700 or above. The higher their credit score, the better your approval chances and loan terms will be.
Related: Learn more about getting a personal loan on Credible.com