Which Lenders Accept Co-signers for Personal Loans?
Getting a personal loan can be a big help if you have an unexpected financial need. However, you're still applying for a line of credit, which means that your financial credentials must qualify you for a loan.
If you don’t have great credit, you might have trouble.
One thing that can help is getting someone to co-sign on the loan.
A co-signer agrees to pay the loan if you don’t, and in exchange, you get the benefits of your co-signer’s good credit.
However, not every lender will allow applicants to have co-signers on a personal loan.
Lenders That Accept Co-signers On Personal Loans:
Other noteworthy lenders to consider:
| Lender | What You & Your Cosigner Need To Apply | Additional Things To Know |
|---|---|---|
| Backed | ||
| FreedomPlus | ||
| Mariner Financial | ||
| U.S. Alliance Financial |
What is a Personal Loan?
A personal loan is a type of loan that you can use for almost any purpose.
Unlike a mortgage, which is used to buy real estate, or an auto loan, which is used to buy a car, personal loans can be used to buy nearly anything.
You can get a personal loan from a number of companies. Most commonly, you’d apply for a loan from the bank or credit union you keep your accounts at.
You could also look for online lenders who offer personal loans.
What is a Co-signer?
In effect, a co-signer is someone who vouches for your trustworthiness and agrees to take on the risk that you might not pay a loan.
When you apply for a loan, the lender will look at your application and will look at your credit score.
If you have poor credit, the lender will see you as a risk and be less willing to offer a loan. If the lender does offer you a loan, they might charge a higher interest rate or heftier fees.
If you get someone with good credit to co-sign on a loan, what they’re effectively doing is telling the bank “I’m trustworthy, and I trust this person enough to put my money at risk if they don’t pay.”
Co-signer vs. Co-Applicant, what's the difference?
Though co-borrowers and co-applicants are largely the same, they differ slightly from cosigners.
Co-signers act as a backup for the lender. If the person who received the loan fails to make payment, the cosigner then becomes responsible.
Typically, the co-signer does not have an interest in whatever the loan was used to purchase. So, if someone co-signed on a mortgage, they would not have any claim to the house.
When someone co-signs on a loan, the lender will look at both the applicant’s credit and the co-signers credit but will weigh the co-signers more heavily.
Co-applicants have a larger stake
By contrast, co-borrowers and co-applicants apply for a loan alongside the other applicant. When applying for a loan, these people might also be called joint applicants.
Both applicants are equal in this case and the lender will apply similar weight to both people’s credit.
Usually, co-borrowers will have an ownership stake in whatever the loan was used to purchase.
Additionally, if one co-borrower declares bankruptcy, that protection usually applies to the other co-borrower.
Benefits of Having a Co-signer
There are a lot of benefits to asking someone to co-sign on a loan.
Easier to qualify
One of the main benefits is that it makes it much easier to qualify for a loan, assuming the co-signer has good credit.
Even if you have bad credit, having someone with good credit co-sign on a loan gives the bank reassurance that it will get its money back. If you fail to make payments, your cosigner will foot the bill for the lender.
Having this backup in place makes it much easier for the lender to get paid. It won’t have to spend time and money pursuing you for payment or bringing you to court. It will just start sending bills to a new address.
Get a lower rate
If you don’t have trouble qualifying for a loan, getting a co-signer can still help you save money.
The extra security provided by a co-signer means that lenders can charge you less interest.
If your co-signer has excellent credit, you can take advantage of that, getting the lowest interest rates available.
Here's an example. If you were to take out a personal loan from LendingClub for $25,000 for 60 months, this how a cosigner might affect your interest rate:
How A Cosigner Can Affect Your Loan
| Borrowing Amount | Approved APR | Monthly Payment | Total Amount Paid | |
|---|---|---|---|---|
| Without A Cosigner | $25,000 | 16.30% | $611.94 | $36,716.62 |
| With A Cosigner | $25,000 | 11.45% | $549.19 | $32,951.27 |
This is just to give you an idea of how a cosigner could benefit you. It's possible a cosigner could also help you receive a larger borrowing amount or a shorter payment term.
Why Would You Need a Co-signer?
You would need a co-signer to get a loan if a lender thinks that lending to you alone is too risky.
The most common situation where a lender will require a co-signer is if you have no credit score.
When you turn 18, your credit file is blank, so no lender can tell how likely you are to pay your loans back. You need to find a lender willing to take the risk by lending to you so you can start building credit.
If you can convince someone to cosign on a loan, the lender will overlook your lack of a credit history, instead, looking at your cosigners.
If you get the loan, you’ll then start building your own credit score and will eventually reach the point where you won’t need a cosigner.
Who Can Cosign on a Loan?
Anyone can cosign on a loan, but most commonly it is a family member who will cosign on a loan.
Parents often cosign on their children’s loans to help them build credit and pay less interest. It’s less common for a friend or someone else to cosign because of the risks involved.
Just remember that a cosigner should have a good credit score. The main benefit of having a cosigner is using their good credit to improve your chances of getting a loan, so getting someone with poor or no credit to cosign a loan won’t do much.
How to apply for a personal loan with your cosigner:
- Research and compare lenders (like the ones we've listed above).
- Prepare all of your financial documents (i.e., you and your cosigner's pay-stubs, tax forms, employment information, and utility bills.
- Apply for the loan together, either online or in branch.
Risks of Cosigning on a Loan
If someone asks you to cosign on a loan, you should think twice before agreeing.
When you co-sign on a loan, what you are doing is taking on all of the risks of the loan, without getting any of the benefits.
When things go wrong
If the person who borrows the money doesn’t pay the bills, you’ll become fully responsible for the payments.
If that happens, the lender and credit bureaus will treat you just the same as if you had been the original borrower.
That means that you have to make the minimum payment each month. If you don’t, you’ll owe late payment fees and you’ll see the missed payments on your credit report, damaging your score.
Once you cosign on a loan, you’re locked in. There’s no way to get out of being a cosigner until the loan is paid in full.
Relationship in danger
You’ll want to carefully consider who is asking you to cosign on their loan and how much you trust them. If you have any doubt at all that they might not pay the loan back, politely refuse to cosign.
Also, consider that bringing money into a relationship can change that relationship.
Don’t discount the effect that cosigning on a loan can have on your relationship with the person asking you to cosign.
Pros v. Cons of Having A Cosigner On Your Loan
| Pros | Cons |
|---|---|
Alternatives to Finding a Cosigner
If you can’t find a cosigner or don’t want to ask someone to co-sign on a loan, there are other ways you can increase your chances of getting a loan.
Improve your credit
Though it’s easier said than done, improving your credit score is a surefire way to improve your chances of getting a loan.
While the best way to improve your credit score is to make on-time payments over a long period of time, there are ways to improve your credit in the short-term.
Try to reduce how much you use your credit cards and pay down any large debts you have.
Also avoid applying for a lot of loans in quick succession, since that can hurt your score.
Apply for a secured loan
If you can’t qualify for an unsecured personal loan, try a secured loan.
With a secured loan, you provide something of value, such as title to your car or the balance of a savings account as collateral.
The lender uses this collateral as a guarantee that you’ll make payments. If you don’t make your payments, the lender will take possession of the collateral.
This greatly reduces the lender’s risk, making them more likely to offer you a loan.
Examples of Secured Loans vs. Unsecured Loans by Lender
| Lender | Secured Loan | Unsecured Loan |
|---|---|---|
| TD Bank |
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| Wells Fargo |
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| PNC Bank |
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| M&T Bank |
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Try applying at a credit union
Credit unions tend to be more flexible with offering loans and have a vested interest in helping their communities. Go to your local credit union, explain your situation, and ask if they can help.
You might find that the credit union can make something work.
Ask for a smaller loan
If you have poor credit but want to borrow $100,000, you’ll be hard-pressed to find a willing lender.
If you want a smaller amount, like anywhere between $500 and $5,000, more lenders might be willing to take the risk.
Use a credit card
If you absolutely must, you can use a credit card as a last-resort source of money.
Credit cards tend to charge incredibly high-interest rates, so only carry a balance if you absolutely must.
If you can, try to take advantage of a low-APR card.
Conclusion
Getting a cosigner for a personal loan can improve your odds of getting the loan and reduce the amount of interest you pay. Just make sure you understand the risk you’re asking your cosigner to commit to and the effect it may have on your relationship.
