Can You Get a Personal Loan With a Cosigner?

What Does a Cosigner Do?

A cosigner is someone who agrees to take responsibility for the loan if the main borrower fails to make their payments as promised. They're essentially vouching for the primary borrower and putting their own credit on the line. That isn't necessarily a bad thing. If the borrower makes good on their loan payments, it can help improve their own credit score and strengthen their cosigner's credit as well.

Below are the responsibilities of a personal loan cosigner:

• If the application is approved, they agree to take equal responsibility for the primary borrower's personal loan debt.
• The loan will then be added to the cosigner's credit report. The same goes for the primary borrower.
• The primary borrower is responsible for making regular loan payments, but the cosigner will not have access to loan funds.
• If the primary borrower stops making their payments, the cosigner will be responsible for stepping in and repaying the loan.

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Cosigner vs. Co-Borrower

A cosigner is not the same as a co-borrower. The latter is a co-applicant who has a shared interest in the loan. That means they have equal ownership and will have access to the loan funds. They're also equally responsible for making loan payments. Both names will appear on the personal loan documents.

Applying for a personal loan with a co-borrower might improve your chances of getting approved. That's because the lender will consider both of your credit scores, incomes and debt-to-income ratios (DTIs). Your DTI shows lenders how much of your monthly income is going toward debt payments. You may need a DTI that's below 36% to qualify for a personal loan with a reasonable interest rate, though some lenders may have looser requirements.

Applying with a co-borrower might also give the lender extra reassurance because two people are responsible for repaying the loan, which could reduce the likelihood of a default.

Learn More >> Co-Borrower vs. Cosigner: What's the Difference?

Benefits of Using a Cosigner to Get a Personal Loan

• It can help borrowers with bad credit. Applying with a creditworthy cosigner can make you a more attractive borrower who's at lower risk of defaulting on their loan. In some cases, it could be the thing that enables you to get approved.
• It can unlock better interest rates. You may qualify for lower annual percentage rates (APRs) if you have a financially strong cosigner. That can reduce your total loan costs.
• You might be able to borrow more. Bringing on a cosigner could increase your borrowing power and allow for a larger loan amount.

Drawbacks of Using a Cosigner to Get a Personal Loan

• Your payment history will affect the cosigner's credit. If you miss a payment or stop repaying your loan altogether, that will negatively affect your credit score—and your cosigner's too.
• It will increase the cosigner's DTI. Even if the primary borrower makes all their loan payments on time, the personal loan will appear on the cosigner's credit report. That can increase their DTI and may impact their ability to qualify for financing in the future.
• It could put your relationship at risk. Blending finances and personal relationships can be a delicate dance. You'll want to make sure your cosigner doesn't feel like you're using them for their credit score or putting their financial health at risk. Otherwise, it could affect the relationship.

When Should You Use a Cosigner on a Personal Loan?

You might consider asking a loved one to act as a cosigner on your loan if:

• You have less-than-perfect credit.
• Your income makes it hard to qualify for a personal loan on your own.
• You're hoping for a more competitive interest rate.
• You're seeking a larger loan.
• You know someone who would make a good cosigner and you feel comfortable talking to them about it.

How to Choose a Cosigner

Even if someone offers to cosign for a personal loan, that doesn't necessarily mean they're the right fit. Ultimately, you'll want someone who:

• Has a credit score of at least 580: However, they'll likely need a score in the 700s to qualify for favorable loan terms.
• Has a low DTI: Again, this ratio should ideally be below 36%. You can calculate your DTI by dividing your total monthly debt payments by your gross monthly income.
• Is responsible: The ideal person is someone who takes their financial health seriously and feels comfortable taking on the responsibility of being a cosigner. That might be a parent, family member or trusted friend.

Learn More >> What Credit Score Does a Cosigner Need?

How to Qualify for a Personal Loan Without a Cosigner

You may not have someone in your life who's ready and willing to cosign for a personal loan. If that's the case, there are steps you can take to improve your chances of qualifying on your own.

• Check to see if you qualify. Before you ask someone to cosign, you can browse and compare personal loan offers with Experian with no impact to your credit. You may see preapproved offers.
• Improve your credit score. Your payment history accounts for about 35% of your FICO^® Score^☉ , so paying all your bills on time is a good way to improve your credit. You can also prioritize paying down debt, which will reduce your DTI and your credit utilization ratio.
• Compare lenders. Every personal loan lender is different. Shopping around can help you compare interest rates, loan amounts, repayment terms, fees and eligibility requirements.
• Offer loan collateral. Personal loans are usually unsecured, which means there's no asset serving as collateral. Some lenders may allow you to collateralize a personal loan with a savings account, certificate of deposit (CD) or other asset of value. That could lead to a lower interest rate, though these assets will be at risk if you default on your loan.

The Bottom Line

Bringing on a cosigner might make you a more attractive candidate for a personal loan, especially if you're struggling to qualify on your own. But it does require commingling your finances with someone else's. That could put your relationship at risk, so you'll want to be upfront with the person who's willing to help.