Guide to Getting a Personal Loan With a Cosigner

Understanding the role of a cosigner

A cosigner helps your loan application by agreeing to repay the loan if you don’t. Lenders look at their credit score and income along with yours, which can make approval more likely. You’ll have full access to the funds, but the cosigner shares equal responsibility for paying back the loan; if you miss payments, it affects their credit too.

You might need a cosigner if you:

• Have a low or unstable income
• Have limited credit or no credit history
• Work gig or freelance jobs
• Have a high debt-to-income (DTI) ratio
• Don’t meet the lender’s minimum age requirement

» MORE: Getting a personal loan with bad credit

Benefits of a cosigner

A cosigner can be beneficial during the application process because they strengthen your application and can improve your chances of getting approved.

Sometimes lenders offer borrowers who find a cosigner better terms, such as lower interest rates, longer repayment terms or larger loan amounts. Adding a cosigner can help you access the funds you need more quickly so that you can start building a positive credit history through on-time payments.

“Having a cosigner could lower your interest rate in some cases,” Trevor Smith, a corporate branch manager at Wasatch Peaks Credit Union in Ogden, Utah, told us. “Many institutions will use the highest score of the two borrowers to determine which rate is given. Having a cosigner may also help to qualify for higher loan amounts. In a lot of cases, income can be combined, which makes it more likely to get higher loan amounts.”

Be sure to make timely payments since this will positively impact both your credit and that of your cosigner. Late and missed payments, however, will have a negative impact on both your credit scores. This not only damages your finances but could also damage your relationship.

Applying for a personal loan with a cosigner

Applying for a personal loan with a cosigner involves a few extra steps, but it can help you qualify for better terms. Here’s what to do:

1. Find lenders that allow cosigners

Not all lenders accept cosigners, so start by narrowing your options to those that do.

2. Check eligibility requirements

Review minimum credit scores, income levels and any other conditions before applying.

3. Gather required documents

You’ll need to provide personal and financial information for both you and your cosigner. Before applying, check that your credit score and DTI ratio meet the lender’s requirements. Many lenders look for a minimum credit score of 580 and a DTI ratio below 36%. If you don’t meet these standards, a cosigner who does could improve your chances of approval.

Commonly required personal details include:

• Social Security number
• Date of birth
• Phone number
• Physical address
• Employment status and employer name
• Gross monthly income and source
• Monthly rent or mortgage payment amount

4. Submit the loan application

Fill out the application with all required documents. The lender will run a hard credit check on both you and your cosigner.

5. Review the loan terms

If you’re approved, review the interest rate, loan term and repayment obligations. Your cosigner is equally liable if you default, so make sure both parties understand the responsibilities.

Most lenders approve applications within five business days. You may receive funds as soon as the next business day.

» MORE: Best personal loans if you have a cosigner

Responsibilities and risks for cosigners

The biggest risk for cosigners is that the primary borrower stops making payments, and they have to assume the loan themselves. Unfortunately, cosigners have the same responsibilities for paying off a loan as primary borrowers, but they don’t receive any loan funding.

If the primary borrower has late or missing payments, it can negatively impact both the cosigner's and the primary borrower's credit.

Leslie Tayne, the founder of Tayne Law Group in Melville, New York, explained: “The cosigner could also be sued or have their wages garnished if the loan goes into default or into collections. Legal implications, such as wage garnishment, can have serious negative effects on a credit profile and can take years to recover from.”

If you’re thinking about becoming a cosigner, consider how trustworthy the primary borrower is. You may want to ask them to show you their budget; that way, you can confirm that they can afford the loan payments.

Also, ensure you can log in to the lender's website to view the loan payments. You may not be notified by the lender that payments have been missed until it has negatively affected your credit.

Finally, be prepared to step in and make payments if needed. You are guaranteeing the loan, so you’re legally responsible for it. Make sure that your day-to-day finances won’t be affected if you wind up having to make payments for the primary borrower.

Comparing personal loan options with a cosigner

When comparing personal loans, the borrower and the cosigner should discuss the following:

• Loan amount: Borrow only what you need. A larger loan means higher monthly payments and more interest over time.
• Interest rate: Some lenders base your rate on the higher of the two credit scores, which could lower your interest rate. The rate you receive plays a major role in the total cost of the loan.
• Loan term: A longer loan term lowers monthly payments but increases total interest costs. Make sure the timeline works for both you and your cosigner.
• Fees: Watch for origination fees and prepayment penalties. Origination fees typically range from 1% to 10% of the loan amount and may be deducted from the loan or paid upfront.