Can You Get a Cosigner on a Personal Loan?

Obtaining a personal loan with a cosigner is a common practice that can facilitate approval when a primary borrower might not qualify on their own. A cosigner acts as a guarantor, agreeing to repay the loan if the primary borrower fails to do so. This arrangement reduces the lender’s risk, potentially leading to more favorable loan terms. This article explains how cosigning functions for personal loans, detailing its advantages for borrowers, the responsibilities assumed by cosigners, the application steps, and considerations for managing such a loan.

When a Cosigner is Helpful

A cosigner is beneficial when a borrower faces challenges securing a personal loan independently. A common scenario is a poor credit history, where a low credit score or past financial difficulties may lead lenders to deny applications or offer unfavorable terms. Individuals with limited or no credit history, such as young adults or new residents, also struggle to demonstrate creditworthiness, making a cosigner’s established credit profile valuable.

Insufficient income is another barrier, as lenders assess a borrower’s ability to repay based on income relative to the loan amount and existing debts. A cosigner with a stable income can help meet these financial requirements. Beyond approval, a cosigner with a strong credit history can help secure a lower interest rate or more advantageous loan terms, reducing the overall cost of borrowing.

Understanding the Cosigner’s Responsibilities

Cosigners undertake substantial financial and legal obligations. The cosigner becomes equally responsible for loan repayment if the primary borrower defaults. Lenders can pursue the cosigner for missed payments or the entire outstanding balance. This shared responsibility means the loan appears on the cosigner’s credit report, impacting their credit score positively with on-time payments and negatively with missed payments or default.

Lenders seek cosigners with a robust financial profile, including a strong credit score (e.g., 670 or higher), stable income, and a low debt-to-income (DTI) ratio (ideally below 36%). If the primary borrower fails to make payments, the cosigner may face legal action, including lawsuits, wage garnishments, or asset seizures to recover the debt. Cosigners do not gain access to the loan funds or ownership of any assets purchased with the loan.

The Application Process with a Cosigner

The process of applying for a personal loan with a cosigner involves several key steps. Initially, the primary borrower should engage in an open discussion with a potential cosigner, ensuring they fully comprehend the responsibilities and potential risks involved. Both parties will then need to gather necessary documentation for the application.

This typically includes personal identification (such as a driver’s license or passport), proof of income (like pay stubs or W-2s), proof of address, and Social Security numbers. Many lenders require both the borrower and cosigner to apply together, often completing a single application form that combines their financial information. The lender will then assess the creditworthiness and financial standing of both individuals, conducting a hard credit inquiry that may temporarily affect both credit scores. If approved, both the primary borrower and the cosigner will be required to sign the loan agreement, formalizing their legal obligation.

Managing a Cosigned Personal Loan

Once a cosigned personal loan is approved, the primary borrower is expected to make all scheduled payments. Consistent and timely payments are crucial, as they positively affect the credit scores of both the primary borrower and the cosigner. Open communication between the borrower and cosigner regarding payment status is highly advisable to prevent misunderstandings or missed payments.

Both parties should regularly monitor their credit reports to ensure payments are accurately reported and to identify any potential issues early. Some lenders offer a “cosigner release” option, allowing the cosigner to be removed from the loan after certain conditions are met, such as consecutive on-time payments (often 12 to 48 months) and the primary borrower meeting updated credit and income criteria. However, if the loan defaults due to missed payments, both the primary borrower and cosigner will face severe consequences, including negative impacts on their credit scores, potential collection efforts, and legal action.