Personal loans with a cosigner: What to know before you apply

If you need cash for an emergency or any other reason, a personal loan could help. You can apply on your own but you might ask a trusted friend or family member to cosign if you want reassurance that you'll be approved.

Getting a personal loan with a co-signer could help you qualify for better terms or a larger loan amount. A co-signer can strengthen your application if you have poor or limited credit. Learn the basics of co-signed personal loans to decide if one might be right for you.

How a personal loan with a co-signer works

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. A co-signer could help you get access to a loan even when your credit isn't perfect, and you may get a lower interest rate in the bargain.

A co-signer acts as an insurance policy for the lender. If you miss a payment, the lender can turn to the co-signer to pay. When you apply for a loan with a co-signer, the lender factors in their credit profile as well as yours to measure risk. The better your co-signer's credit is, the better your loan terms may be.

Both the primary borrower (that's you) and the co-signer will typically need to provide proof of income and identity. The lender generally runs a hard credit inquiry on both applicants, which will show up on both their credit reports. The co-signer does not receive any of the loan funds. 

Co-signer vs. co-borrower: what's the difference

You could get a personal loan with a co-signer, or you could apply with a co-borrower. These two roles are often confused, but they work differently.

• A co-signer guarantees repayment of a debt for someone else. Co-signers don't get access to the loan funds and aren't responsible for making payments unless the primary borrower fails to do so. In that case, the lender holds the co-signer responsible for the remaining balance.

• A co-borrower applies for the loan alongside the primary borrower. If approved, both parties have access to the funds and share equal responsibility for repayment from day one. 

Applying with either a co-signer or a co-borrower could help you qualify or get a lower interest rate. So, should you apply with a co-signer or a co-borrower? 

A co-signer typically makes sense when you just need help with approval, but don't plan to share the loan funds (or whatever it is you're using the money for) with the person who co-signs. A co-borrower could be a better choice if you're using the funds for a joint effort, like buying a car together. 

Note that not all lenders offer both options; some accept only co-borrowers.

Potential benefits of applying with a co-signer

Co-signed personal loans offer some advantages. You might add a co-signer to improve approval odds, qualify for a better interest rate, or access a larger loan amount. Here are some of the reasons you might consider getting a personal loan with a cosigner. 

• Credit is an issue: A co-signed personal loan could improve your approval odds if your credit isn't great, or nonexistent. Lenders can use the co-signer's positive credit history to outweigh poor or limited credit on your part. 

• Larger loan: You may qualify for a higher loan amount with a co-signer. That's a plus if you need a loan for a large planned purchase, or a major emergency.

• Interest savings: A co-signed personal loan may help you snag a lower interest rate if there's less risk for the lender. A lower rate could add up to hundreds or even thousands of dollars in interest savings over time.

• Better terms: Getting a personal loan with a co-signer could help you get better terms overall, when it comes to repayment, fees, and rates. 

Co-signed personal loans could also help your credit if you pay on time or early each month. Payment history accounts for the largest share of your FICO credit score calculation. 

What co-signers take on 

Co-signers agree to let the lender pull their credit reports to approve your application. They may also be asked to share details about their income and debt-to-income (DTI) ratio. And of course, they accept shared responsibility for the debt. 

Here are the risks of co-signing a loan for someone else:

• Missed or late payments can show up on both people's credit histories. The co-signer's credit score could be affected just as much as (or more than) the primary borrower's 

• The co-signer is legally responsible for the full remaining balance if the primary borrower stops making payments, starting the day the loan is signed

• If the debt goes unpaid long enough, lenders may pursue collections against both parties, which could include legal action 

Here's something else to think about. Your relationship with your co-signer could suffer if you default on the loan; they may not appreciate calls from debt collectors or credit score dings. Talk to your co-signer beforehand to make sure they understand the risks. 

What lenders typically look for in a co-signer

Lenders generally look for a co-signer who has a strong credit score, stable income, a low DTI ratio, and a credit history that meets the lender's specific underwriting criteria. The co-signer typically needs to be at least 18 years old, or the legal age of majority in their state, and a U.S. resident. 

As you compare lenders that accept co-signers, review the minimum qualification requirements. Check the minimum credit score and income you'll need, if that's disclosed. Also, consider the minimum and maximum loan limits, terms, rates, and fees. Get rate quotes from at least three lenders so you have an idea of what range you might land in.

How to apply for a personal loan with a cosigner

Applying for a personal loan with a co-signer isn't too different from applying for a personal loan solo. The main difference is that your co-signer has to provide the same information that the lender asks of you. Here's how it works. 

1. Decide how much to borrow. You may know the exact loan amount you need already. If you don't, take time to add it up so you can apply with a specific number in mind.

2. Choose your co-signer. If you don't have a co-signer in mind yet, think about who you could ask. Ideally, you choose someone with a stronger credit profile than yours who understands the responsibility involved. 

3. Compare lenders. Some accept co-signers; others only allow co-borrowers or require solo applications. Shop around and compare interest rates and terms.

4. Check eligibility. Look for lenders that offer prequalification with a soft credit check. Soft credit pulls won't affect your credit scores (or your cosigner's).

5. Gather documents. Both parties typically need proof of income, government-issued ID, Social Security number or ITIN, and proof of address. You and your co-signer can save time by rounding up copies of your most recent paystubs, direct deposit slips, bank statements, and/or tax returns. 

6. Apply. Submit the complete application. Both parties will likely go through a hard credit inquiry (a formal request by a lender to review your full credit report) at this stage.

7. Review and sign. If approved, read the loan agreement carefully before both parties sign. You'll also need to tell the lender which bank account to send the loan funds to.

When a co-signer may not be the right fit

Adding a co-signer is not always the best option. If the co-signer's credit profile is only marginally better than yours, for example, you may see few benefits in terms of lower rates or higher loan amounts.

You could also forgo a co-signer if you have the means to improve your credit within a relatively short period and don't need the loan right now. A few months could be enough time to bring your score into a higher range, which could help you unlock more loan options. 

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

Your purpose for the loan may also factor into your decision. For example, if you primarily want to get a personal loan to deal with overwhelming credit card debt, there may be other solutions you could explore. Talking to a debt expert about debt relief can help you weigh all the options. 

Ready to take the next step?

If applying with a co-signer seems like the right move, here's how to get started:

• Talk to your potential co-signer first. Walk them through what co-signing means,  including what appears on their credit report and what they're responsible for if payments are missed. An honest conversation upfront protects the relationship.

• Check your own credit. Knowing where you stand helps you understand how much a co-signer's stronger profile may improve your application. There are several ways to check your credit score for free.

• Compare lenders before you apply. Not every lender accepts co-signers, and rates and terms vary. Looking at multiple options before submitting a formal application can help you find the best fit without affecting your credit.

• Prequalify together. Many lenders offer prequalification with a soft credit check, so both you and your cosigner can see potential terms before committing.