Co-signers and co-borrowers: What it means when you apply with someone else

If you’re worried that you might not get approved for a personal loan, applying with a co-signer is one way to improve your chances. But if you’re looking for the best possible deal financially, applying with a co-applicant might help you more. 

What is a personal loan with a co-signer? 

When you take out a personal loan with a co-signer, the other person agrees to be legally responsible for the debt if you can't repay it. Asking someone to co-sign a loan is a big ask, but it could help you get money when needed, possibly at a lower interest rate than you could get if you applied alone. 

Let's say your vehicle breaks down and you must borrow $4,500 for repairs. Unfortunately, your credit history is less than perfect, and the only loan you qualify for carries a hefty interest rate.  

A co-signer with a strong credit history and high credit score promises to be your backup if you miss payments. Because they've agreed to act as backup, the lender looks at the co-signer's credit score to determine whether you qualify for a loan and what interest rate you'll pay. A loan with a co-signer represents less risk to the lender, and your odds of securing the best possible rate and loan terms improve. 

What does it mean to be a co-borrower, co-applicant, or co-signer on a personal loan?

A co-applicant is someone who applies for credit with you. If you’re approved, you become co-borrowers. You both get access to the loan funds, and you share responsibility for the debt. Co-borrowers typically work together to repay the loan, but the actual financial arrangements for repayment are up to you. 

A co-signer is someone who guarantees repayment of a debt for someone else. Co-signers don’t get the loan funds and aren’t responsible for making payments unless the primary borrower fails to do so. In that case, the lender will hold the co-signer responsible for whatever amount is still owed. 

Applying with either a co-signer or a co-applicant could help you qualify for a loan or get a lower interest rate.

Reasons to use a co-signer on a personal loan

A borrower might get a co-signer to improve their chances of loan approval, qualify for better interest rates, or secure a larger loan amount, especially if they have a limited credit history or lower credit score. At a glance, here are the top benefits of applying with a qualified co-signer when you need a loan:

• Higher odds of loan approval

• Lower interest rate

• May qualify for a larger loan amount

• Better loan terms

• Potentially lower fees

• Your credit score improves with each on-time payment, making it easier for you to land a loan on your own the next time you need one

Other benefits of using a co-signer on a personal loan

In addition to the benefits mentioned above, adding a co-signer to your loan could offer other sweet perks. 

• You're not alone. Whether you're a first-time borrower or you are focused on rebuilding your credit score, having someone you respect and trust sign on as a co-signer makes borrowing money a little less intimidating. After all, if you have any questions about the loan process, you can ask your co-signer for insight. And because the loan decision no longer relies solely on your credit, you could get a better deal than you’d qualify for alone.

• Excellent opportunity to learn everything you can. It only makes sense to ask someone with good to excellent credit to serve as a co-signer. That means by the time you ask, your co-signer has spent years managing their financial obligations. No one is born knowing everything there is to know about personal finance, so take this chance to learn from someone who's built a strong credit history and can help you figure out how to do the same. 

Risks of using a co-signer on a personal loan

Using a co-signer on a personal loan carries risks, mostly for the co-signer. They include:

• The co-signer is legally responsible for the loan, even though they don't benefit from it. From day one, the co-signer is responsible for making the monthly loan payment if you fail to do so. 

• The payment history on the loan is reported on both people’s credit histories. If you miss a payment, your co-signer’s credit could take a hit, just like yours. 

• The loan becomes part of the co-signer’s credit report and increases their debt-to-income (DTI) ratio. DTI is the percentage of your income that you spend on debts. Your loan will cause your co-signer’s DTI to be higher, and that could prevent them from qualifying for a loan they need. 

• It can be difficult for a co-signer to be removed from a loan once they sign. 

• If you miss payments, you could put your relationship with the co-signer at risk. 

What a co-signer needs to know before signing on a personal loan

Co-signing a loan means you’re agreeing to repay it out of your own pocket if the primary borrower defaults. Co-signing is a huge favor that puts you at financial risk. If the primary borrower misses a payment, the lender can take the same legal actions against the co-signer as the primary borrower, up to and including filing a lawsuit and even garnishing their wages.

If you’re being asked to co-sign a loan, think about the potential pitfalls carefully. If the borrower can’t make the payments on time, is it going to put your relationship at risk? Are you willing to repay someone else’s debt if they can’t make the payments? 

Getting a loan without a co-signer

Co-signing is serious. If any of this makes you or your co-signer uncomfortable, consider that it’s possible to improve your credit within a few months and try to qualify on your own. That’s especially true if your low credit score is the result of an isolated incident, but you otherwise handle your accounts responsibly. 

If you want to get rid of your credit card debt but can’t qualify for a personal loan without a co-signer, you can look into a debt resolution program. A professional debt negotiator could help you get rid of your debt faster and for less money compared to slogging it out with minimum payments. And you won’t need to ask anyone to co-sign—and take a financial risk—for you.

What a co-applicant needs to know before signing on a personal loan

Being a co-applicant, and later a co-borrower, means you and the other person are on a financial journey together. You're both borrowing the money, you both have a right to access it, and you're both equally responsible for paying it back. 

Co-borrowing has many advantages. From the lender’s point of view, co-applicants represent a lower risk than single applicants. That’s why you might get more favorable terms if you apply with a co-applicant.

Applying together means you get to use both people’s incomes to qualify, which might mean a bigger loan. If your co-applicant has much stronger credit, the lender might offer better terms than you’d get on your own.

And best of all, in some cases, when you apply for a personal loan with a co-applicant you might be able to get a discount on the loan itself.

How to choose a co-signer for a personal loan

When someone agrees to co-sign a loan, they're doing you a huge favor, and not everyone is right for the job. The following are things to consider as you decide who you'd like to ask to co-sign your loan. The ideal candidate is someone:

• You're close to. You want to ask someone you're already close to, a person who knows and trusts you. 

• With a strong credit history. Having a co-signer only benefits you if that person has a higher credit score than you. 

• You're protective of. While the term "protective of" may seem dramatic, it's important that you care about your co-signer's credit score and comfort level. 

• You can learn from. Ideally, your co-signer can offer you financial advice when you need it. 

The pros and cons of co-signed personal loans

The pros and cons of having a co-applicant on a personal loan

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

Applying for a personal loan with a co-signer could be as simple as applying alone. Here are the basic steps you'll take:

Review the details

Even if you've already discussed the details of your agreement with the co-signer, go over them again for good measure. For example, find out if the co-signer would like proof of payment each month so they never have to worry about being on the hook. You want to do everything you can to assure the co-signer that you appreciate what they're doing and will protect their credit. 

Compare lenders 

No two lenders are exactly alike. Some accept co-signers, while others don’t. Once you're sure you and your co-signer are on the same page, shop around for a respected lender that allows co-signers. Compare interest rates, origination fees, and any special perks—like the ability to put payments on pause if you run into a financial hardship.  

Check eligibility requirements

You can't be sure a lender is right for you until you learn more about their eligibility requirements. Eligibility requirements include a minimum credit score, proof of income, employment history, and DTI ratio. A great way to find out if a lender is a good fit is to get pre-approved. Be sure the lender can do this with a soft credit check that doesn’t hurt your credit score.

Check credit

Order a copy of your credit reports from TransUnion, Equifax, and Experian, the three major credit reporting agencies. You can get all three for free from annualcreditreport.com. Review each report carefully (they are likely to differ slightly). If you find any mistakes—no matter how small—report them to the reporting agency and request correction. Even a small mistake can lower your credit score. There should be a way to dispute inaccurate information while you’re viewing your credit report online.

Gather documents

You and your co-signer will likely be asked to provide employer and income details, Social Security number or ITIN, official identification, proof of address, one or two bank statements, and possibly a tax return. Having all your documents in one place could save time later.  

Apply

Fill out and submit a complete loan application.  

Wait for loan decision 

The lender’s decision on your loan application could come through in minutes, or it might take a few days, depending on the lender and the complexity of the loan request.   

Sign the loan agreement

If your loan has been approved, read over the fine print and make sure you're comfortable with the contract. Once you're ready, sign the loan agreement. 

Repay the loan

Your first payment will typically be due in about 30 days. However, check your loan agreement for the precise due date. Setting up autopay is the easiest way to make sure you're never late with a payment. 

Applying for an Achieve personal loan with a co-applicant

You can apply for an Achieve personal loan with a co-applicant for almost any financial need. It could be a great way to accomplish a financial goal like these:

• Consolidate credit card debt 

• Pay off medical bills or tax debt

• Take care of repairs and maintenance on your home

• Buy appliances or electronics

• Move to a new home

• Finance an education

Achieve Personal Loans offers three ways to get a discount on your personal loan interest rate, which could save you money for the entire life of your loan. Discounts may be available if you:

• Apply with a qualified co-applicant

• Use at least 85% of the loan funds to directly pay off other debt

• Show proof of retirement savings (it’s not used as collateral)

Achieve Personal Loans’ terms are flexible, with repayment periods between two and five years. You could get a loan decision the same day you apply, and get your funds sent within 72 hours.

Achieve is not a credit repair organization and does not provide or offer services or advice to repair, modify, or improve your credit.