Guide to getting a personal loan with a co-signer

Why you might need a co-signer

Personal loans are considered unsecured loans, or loans that are not tied to collateral. Therefore, lenders have strict credit and income guidelines. You might need a co-signer if you have:

• A low credit score
• Low or no income
• No credit history
• Not met age requirements
• Freelance/gig income
• A high debt-to-income (DTI) ratio

Even if you qualify for a personal loan, having a co-signer with a higher credit score and income may help you lock in a lower interest rate.

Even if you can’t find a co-signer with excellent credit, having two signers rather than one can help increase your approval chances.

Michael, a ConsumerAffairs reviewer from Arizona, was approved for more money than he asked for from a lender “even though my co-signer and I have both had some credit challenges in the past.”

» MORE: Average personal loan interest rates

Types of loans you might need a co-signer for

Co-signers can help you increase your loan eligibility for many types of loans. If you have minimal or bad credit history, plan to use a co-signer for the following loans:

• Student loans: Private student loans often require a co-signer to meet minimum eligibility. However, you do not need a co-signer for federal student loans, so it is best to apply as the sole borrower so you can qualify for loan assistance in the future if needed.
• Car loans: Even if you can secure a car loan as the sole applicant, a co-signer can help you get the lowest rate possible. You don’t want to overpay on your car loan because brand-new vehicles depreciate quickly.
• Personal loans: Personal loan rates can be upward of 30% if you have bad credit. A co-signer with excellent credit can keep you on the lower end of the rate range and save you money on your loan.

How to apply for a personal loan with a co-signer

Applying for a loan with a co-signer is a big financial commitment for both parties. It’s best to discuss the responsibilities and risks before you begin. Once you both understand all that’s involved, take the following steps to apply:

Once you receive funding, it’s crucial to make all loan payments on time to help you boost your credit score over time and avoid damaging your co-signer's credit score.

1. Identify lenders. Research lenders that offer the type of loan you need and ensure it allows co-signers.
2. Research eligibility requirements. Ensure that both you and your co-signer meet the lending requirements for the loan you are trying to get. Requirements might include credit score and income minimums.
3. Collect documentation. Determine what the lender needs for you to apply. This can include identification for you and your co-signer and proof of income.
4. Fill out and submit your application. Complete the lender's application with accurate information and send it in. Once it’s submitted, expect a hard credit check to be run on you and your co-signer.
5. Review terms. If approved, carefully review the terms before accepting.

Difference between a co-borrower and a co-signer

Co-signers and co-borrowers can both increase your chances of qualifying for a loan, but they are not the same thing.

“A co-borrower is used if you want to share the loan — both borrowers would have access to the funds and are responsible for repayment,” said Kendall Clayborne, a certified financial planner at SoFi. Co-borrowers are common among spouses or when more than one income stream needs to be considered for a larger loan balance, she says.

“A co-signer, however, may be used to help the original borrower qualify or get a better interest rate on their loan,” Clayborne said. A co-signer does not have access to the loan funds but shares the repayment burden. If you don’t repay your loan and the co-signer doesn’t step in, you both are liable to take a credit hit.

» MORE: Best personal loans with a co-signer

How to find a co-signer

A co-signer can be anyone who meets loan eligibility requirements. They can be a spouse, parent, grandparent or other trusted friend or family member. However, you will need their permission to use them as a co-signer, and not everyone is willing to take on the risks of co-signing.

Loan co-signer qualifications

Ideally, your chosen co-signer should have an excellent credit history, a low debt-to-income ratio and a steady source of income. You’ll have access to better loan rates if their credit score is high. And, of course, you need their permission and collaboration to get a loan with a co-signer.

A warning about using a co-signer

Your co-signer’s credit is attached to your personal loan. If you miss a loan payment, both of your scores will suffer. If you can’t make payments on the loan, the co-signer will be held equally responsible. Endangering your co-signer’s finances can damage your relationship with them.

Pros and cons of using a co-signer

Remember: Your co-signer takes on a risk when they agree to be on your loan. Don’t take it personally if a loved family member or friend does not want to take that financial risk.

While there are many benefits of using a co-signer, there are some drawbacks, too.

Fonda, a ConsumerAffairs reviewer from Missouri, was on the hook for a loan she co-signed for a friend after her friend stopped making payments. “An ex-friend needed a cosigner. Having a long-time friend in a dire situation, l agreed to assist by co-signing her [loan]. They were friendly and made it sound legitimate. After only two payments, she stopped paying. Instead of notifying me of her lack of payment, [the lender] reported to the credit bureaus that l had missed a payment, thus damaging my credit rating without warning.”

» MORE: Co-signing a loan: pros and cons

What to do if you can’t get a co-signer

If you’re not able to find a co-signer, you might have to take on a higher interest rate or find an alternative way to borrow money, but you still have options.

• Improve your credit score: If poor credit is the reason you can't secure a loan, focus on improving your credit score. Regularly paying bills on time, keeping credit balances low and avoiding new debt can help improve your credit score over time.
• Consider a secured loan: A secured personal loan is a loan backed by collateral, such as a vehicle, savings, property or stocks. As a result, these loans are easier to qualify for.
• Seek nontraditional lending sources: If traditional banks and credit unions won't approve you, consider other sources. Online lenders, peer-to-peer lending platforms, and credit unions often have more flexible lending criteria.

» COMPARE: Best online loans

Bottom line

A co-signer can be your ticket to personal loan approval and better rates. Lenders are more likely to give you access to better financial products if you have a co-signer with excellent credit and good income — regardless of the type of loan you’re applying for. If you don’t have access to a co-signer, you can still borrow money; you just might need to secure it with collateral or agree to a higher interest rate.

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