Everything You Need to Know About Getting a Personal Loan with a Cosigner

If you’re considering taking out a personal loan but are worried about qualifying on your own, getting a personal loan with a cosigner may be a good option. A cosigner can help you get approved for a loan and potentially secure better terms. But there are important factors to consider before going this route.

In this comprehensive guide, we’ll cover everything you need to know about personal loans with cosigners, including:

What a cosigner does
Benefits and drawbacks of using a cosigner
How to choose the right cosigner
Alternatives to consider
Tips for protecting both the borrower and cosigner

What is a Cosigner and What Do They Do?

A cosigner is someone who agrees to take legal responsibility for repaying a loan if the primary borrower defaults. Typically, a cosigner is a family member or close friend with good credit who is willing to help the primary borrower qualify for a loan.

When you apply for a personal loan with a cosigner, the lender will evaluate both your credit history and financial profile as well as your cosigner’s. Having a creditworthy cosigner can significantly improve your chances of approval and help you secure better loan terms.

The main responsibilities of a cosigner include:

Agreeing to repay the loan if the primary borrower cannot
Having the loan appear on their credit report
Being equally responsible for the debt in the eyes of the lender
Potentially facing credit score damage if payments are missed

It’s important to note that while the cosigner is equally responsible for the debt, they typically do not have access to the loan funds or make regular payments unless the primary borrower defaults.

Benefits of Getting a Personal Loan with a Cosigner

There are several potential advantages to applying for a personal loan with a cosigner:

1. Increased Chances of Approval

If you have limited credit history or a low credit score, adding a cosigner with strong credit can significantly boost your odds of getting approved for a personal loan. Lenders view cosigned loans as less risky.

2. Access to Better Interest Rates

A creditworthy cosigner may help you qualify for lower interest rates than you could get on your own. Even a small reduction in APR can lead to substantial savings over the life of the loan.

3. Higher Loan Amounts

Lenders may be willing to approve you for a larger loan amount with a cosigner, since there is an additional person responsible for repayment.

4. Opportunity to Build Credit

If you make all payments on time, having a cosigned personal loan can help you establish a positive payment history and improve your credit score over time.

Potential Drawbacks to Consider

While there are benefits, getting a personal loan with a cosigner also comes with some risks and downsides to be aware of:

1. Strain on Personal Relationships

Mixing finances with personal relationships can be tricky. If you miss payments, it could damage your relationship with your cosigner.

2. Impacted Credit for Both Parties

The loan will show up on both your credit report and your cosigner’s. Any missed payments will negatively affect both credit scores.

3. Liability for the Cosigner

Your cosigner is equally responsible for repaying the full loan amount. This is a significant financial risk and responsibility for them to take on.

4. Potential Difficulty Getting Future Loans

Having a cosigned loan on their credit report may make it harder for your cosigner to qualify for their own loans in the future.

How to Choose the Right Cosigner

If you decide to pursue a personal loan with a cosigner, choosing the right person is crucial. Here are some factors to consider:

Cosigner Qualities	Why It Matters
Good to excellent credit score (700+)	Helps qualify for better rates and terms
Stable income	Shows ability to repay if needed
Low debt-to-income ratio	Indicates financial stability
Trusting relationship	Ensures open communication
Willingness to take on risk	Understands potential consequences

Ideally, you want a cosigner who not only meets the lender’s qualification criteria but also fully understands and accepts the risks involved. Clear communication about expectations and repayment plans is essential.

Alternatives to Getting a Personal Loan with a Cosigner

Before committing to a cosigned loan, it’s worth exploring other options that may help you qualify on your own:

1. Improve Your Credit Score

Take steps to boost your credit score before applying, such as paying down existing debts and disputing any errors on your credit report.

2. Consider a Secured Loan

Offering collateral like a savings account or vehicle may help you qualify without needing a cosigner.

3. Try a Credit-Builder Loan

These small loans are designed to help build credit and may be easier to qualify for solo.

4. Look into Peer-to-Peer Lending

Some P2P platforms have more flexible requirements than traditional lenders.

5. Save Up and Wait

If possible, delay borrowing until you can improve your financial profile and qualify on your own.

How to Protect Both Parties When Getting a Personal Loan with a Cosigner

If you do decide to move forward with a cosigned personal loan, take these steps to protect both yourself and your cosigner:

Create a formal agreement outlining repayment expectations
Set up automatic payments to avoid missed due dates
Maintain open communication about the loan status
Consider life insurance to cover the debt if something happens to you
Look into cosigner release options with the lender

It’s also wise for both parties to monitor their credit reports regularly to catch any issues early.

Finding Lenders That Allow Cosigners

Not all personal loan lenders allow cosigners, so you’ll need to do some research to find options. Some lenders that typically accept cosigners include:

LightStream
SoFi
Upgrade
Wells Fargo
U.S. Bank

Be sure to compare offers from multiple lenders to find the best rates and terms. Many lenders allow you to check your rate with a soft credit pull that won’t affect your score.

Key Takeaways on Getting a Personal Loan with a Cosigner

Applying for a personal loan with a cosigner can be a helpful way to access funding if you’re having trouble qualifying on your own. However, it’s a significant responsibility for both parties that shouldn’t be taken lightly.

Summary of Advantages:

Advantage	Description
Better Approval Chances	Increase your odds with a cosigner’s credit
Larger Loan Amounts	Potential for higher borrowing limits
Lower Interest Rates	Secure better rates due to stronger overall application
Credit Building Opportunity	Earn positive payment history and improve your score

Summary of Disadvantages:

Disadvantage	Description
Credit Impact on Both Parties	Missed payments harm both credit reports and scores
Risk to Cosigner	Cosigner takes full responsibility for loan repayment
Relationship Risks	Potential strain if borrower defaults on payments
Future Loan Difficulty for Cosigner	Might affect cosigner’s ability to get loans in the future

A Closer Look at Personal Loan Pricing with and without a Cosigner

To give you an idea of how much of a difference having a cosigner can make, let’s compare sample prices for personal loans from LightStream:

Lender	Loan Amount	Term (months)	Interest Rate	Monthly Payment	Total Cost
LightStream	$15,000	60	5.99%	$283	$17,042
LightStream	$15,000 with Cosigner	60	3.99%	$255	$15,298

Note: These are fictional examples and actual rates will vary based on individual creditworthiness.

Tips for Choosing the Right Lender When Applying with a Cosigner

When shopping around for lenders that accept cosigners, consider:

Rates and fees: Compare APRs as well as origination fees or prepayment penalties.
Terms offered: Look at different repayment periods to find the one best suited for your budget.
Cosigner release policies: Some lenders allow you to remove a cosigner after meeting certain criteria, like making on-time payments over time.

Frequently Asked Questions About Personal Loans with Cosigners

Here are answers to some common questions people have about applying for personal loans with cosigners:

Q: Can I get a cosigner release?

A: Yes, many lenders will allow you to remove the cosigner after making a certain number of on-time payments.

Q: What happens if I default and my cosigner doesn’t pay back the loan?

A: The lender can pursue legal action against both parties. It’s best to work out an alternative repayment plan before it gets to that point.

Q: Do I have to choose a family member or close friend as my cosigner?

A: No, but typically you’ll want someone who is willing and able to take on the responsibility. It’s also easier if they are familiar with your relationship.

In Summary

Getting a personal loan with a cosigner can be an effective solution for those struggling to qualify on their own, but it comes with significant risks and responsibilities. Carefully weigh the pros and cons before moving forward and make sure you choose the right cosigner who is fully informed about what they’re agreeing to.

Also consider whether there are other options that might be a better fit for your situation, such as working on improving your credit score or exploring secured loan alternatives. Whatever route you choose, taking time to educate yourself and plan carefully will help ensure the best outcome.

If you decide a cosigned personal loan is right for you, shop around to compare terms from multiple lenders and take steps to protect both yourself and your cosigner throughout the process.