Unlock the Best Personal Loan with Cosigner Tips - 2023

1. What Is a Cosigner?

A cosigner is an individual who signs a loan agreement alongside the primary borrower, sharing equal legal responsibility for repaying the loan. Having a cosigner can significantly increase your approval rate, as cosigners act as grantees to doubly insure the loan, reducing the risk to lenders once the loan is approved.

If the primary borrower fails to repay the loan, the lender has the right to seek repayment from the cosigner.

2. Cosigner vs. Co-borrower: Key Differences and Responsibilities

Although the terms "cosigner" and "co-borrower" are often used interchangeably, it's essential to understand their legal differences and responsibilities.

What is a Cosigner

A cosigner supports another person's loan application and agrees to repay the loan if the primary borrower fails to do so. However, the cosigner needs help accessing the loan funds or seeing information about the loan, such as repayment progress or missed payments.

What is a Co-borrower

A co-borrower submits a joint application for a personal loan with the primary borrower and is equally responsible for the debt repayment. The co-borrower has the same rights as the primary borrower, which include access to loan funds and payment information. For example, if a couple takes out a personal loan for home renovations, both partners, as co-borrowers, have equal rights to use the funds and are equally liable for any missed payments or loan defaults.

3. When Is a Co-signer a Good Idea?

Taking out a personal loan with a cosigner can benefit you in various aspects. A cosigner can help you get approved, lower interest rates, or increase the loan amount you're getting, as a cosigner provides more evidence in credit, income, and other factors for the lenders to evaluate. Finding a reliable cosigner with good credit, a steady income, and a low debt-to-income ratio indicates more robust financial capabilities to pay off the balance on time, which poses less risk to the lenders.

When does a cosigner help you more:

Poor credit history:

When your credit score falls below 600, it becomes difficult to gain approval from lenders.

In this case, if you find a cosigner with good credit for the loan application, you may get approved by the lender more easily.

Seeking a larger loan:

Lenders are more likely to grant sizable loans to applicants with suitable qualifications. By involving a cosigner, you can secure a higher loan amount.

You need a lower rate:

A lower APR means a less expensive loan. Adding a cosigner to your application can help you secure a lower interest rate. The extent to which a cosigner or co-borrower can support depends on several factors, such as their credit score, both applicants' credit histories, your combined debt-to-income ratio, and the lender's underwriting criteria.

Other Scenarios:

If you have poor credit below the average, no credit, or insufficient income to ensure the lender of on-time payments, a cosigner or co-borrower can significantly help. In such cases, having a cosigner or co-borrower who meets the lender's requirements can be the difference between getting approved and being denied a personal loan.

4. Potential Drawbacks to Consider

There are also some downsides to using a co-signer or co-borrower for a personal loan. When considering this option, carefully consider these risks to make a more informed decision:

Joint liability for debt:

The primary borrower and the co-signer or co-borrower are equally accountable for the loan.

If you default on your payment, it damages the credit scores of both you and your cosigner. Even worse, your debt may be delivered to a collections agency, which could file a lawsuit or take other legal actions against one or both parties.

Hard credit inquiry:

Lenders will conduct a hard inquiry on both applicants when evaluating a cosigning application. This may lead to a minor drop in both parties' credit scores.

Increased debt-to-income ratio:

Co-signing or co-borrowing a loan can raise your debt-to-income ratio, making it more difficult to obtain other types of credit in the future.

Impact on personal relationships:

If you have trouble repaying a loan, the financial repercussions may not be the only consequences. The relationship between the primary borrower and the cosigner or co-borrower could also suffer.

5. What Makes a Good Cosigner or Co-borrower?

Lenders seek assurance that your cosigner or co-borrower fulfills their fundamental lending criteria for approval. Consider the following essential characteristics when selecting a cosigner or co-borrower:

High credit score

It's better to find a cosigner or co-borrower with a solid credit history and high credit score as proof of strong financial ability shown to lenders. Generally, a FICO score of 700 or above is deemed favorable.

Minimal debt

Lenders favor cosigners or co-borrowers with a positive debt-to-income ratio, which compares their debt level to earnings.

Your co-borrower or co-signer is less likely to default on the loan if they are less financially stressed due to less debt or higher income.

Stable, substantial income

A co-signer or co-borrower with a steady, sufficient income can take responsibility for the monthly payments on the loan when you fail to do so. It significantly reduces the risk for lenders once the loan is approved.

6. Who can be your Cosigner or Co-borrower?

No specific limitations exist on who can be your cosigner or co-borrower as long as the person meets the lender's eligibility criteria. Here are some examples of individuals you might consider for your loan:

A relative:

Borrowers often ask their relatives, such as their parents or siblings, to cosign a personal loan. Family members have known you for a long time and are familiar with your financial status and the obstacles you're going through, so they are more likely to build a cosigning relationship with you based on mutual trust.

A trusted individual:

A dependable partner, mentor, or close family friend may also be a co-signer or co-borrower.

Tips

When choosing a cosigner or co-borrower, it's essential to remember that you'll be sharing the loan responsibilities for an extended period. To maintain a healthy relationship and ensure their confidence in you, consider the following tips:

• Consider the relationship between you and the prospective co-signer or co-borrower carefully before asking. Ensure that the individual will remain in your life for the loan and that their financial history won't jeopardize your chances of securing the loan.
• Be open about your financial situation: Share your circumstances honestly with your potential cosigner or co-borrower to avoid any misunderstandings or conflicts in the future.
• Establish a repayment plan:

To build trust between you and your co-signer or co-borrower, the first thing you should do is develop a comprehensive and realistic plan for repayment to show that you are committed to and responsible for the debt.

Ultimately, the person you choose as your cosigner or co-borrower should meet the lender's requirements, be willing to take on the financial responsibility and have a positive relationship with you to ensure a successful loan experience.

7. Key Factors to Consider When Applying for a Personal Loan with a Cosigner or Co-borrower

When taking out a personal loan with a cosigner or co-borrower, there are a few things you need to be aware of. To ensure a smooth application process and avoid any unexpected issues, keep the following factors in mind:

Cosigner qualifications:

Ensure you fulfill qualifying requirements, including income, credit score, credit history, and residency. Take residency as an example; specific lenders may require two applicants to live at the same address.

Application timeline:

Applying for a personal loan with a cosigner or co-borrower may extend the processing time, as the lender will need to evaluate both applicants' financial profiles.

Cosigner release options:

Some lenders allow you to remove your cosigner from the loan agreement when specific criteria are met, such as consistent records of on-time payments or after a certain period. However, not all lenders provide this option, so read the fine print.

Loan terms and conditions:

As with any loan application, reviewing and comparing essential factors, including interest rates, loan terms, fees, and loan amounts, is crucial. You can use some professional loan marketplaces to shop around for the best offers from multiple lenders.

8. How to Apply for a Personal Loan With a Cosigner

Applying for a personal loan with a cosigner is similar to using it individually, but the process might take a bit longer, and you'll need to consider additional factors.

1. Review your credit scores:

You can use your credit score to determine suitable lenders and estimate the interest rate you might get. You should also check your cosigner's credit score; a good credit score co-signer can help you get a lower interest rate.

2. Gather necessary documents:

Speed up the loan application process by preparing required documents in advance. Both applicants may need to provide the following:

• Government-issued identification (driver's license, passport, or birth certificate)
• Proof of income (W-2s or pay stubs)
• Proof of residence (rental or mortgage loan agreement)

For more detailed requirements, you can consult your lender.

3. Shop around and compare lenders:

To find the best terms and interest rates, compare different lenders. Look for lenders that allow you to prequalify for a loan, which can help you estimate the rates you're eligible for without impacting your credit score.

4. Complete the application:

You could submit the formal application if you perceived it as a suitable lender. After submitting, conducting a hard credit inquiry is required, reducing your credit score, but only temporarily. Once your loan contract is approved, loan funds will be disbursed to you in one lump sum.

9. Best Personal Loans With Cosigner Ratings

Methodology to Evaluate the Best Personal Loans With Cosigner Ratings

The following section compares six factors among the lenders, including the loan amounts, APRs, origination fees, payoff periods, approval/financing timeline, and minimum credit scores.

1. Best for Large Loans: Wells Fargo

Wells Fargo is ideal for borrowers seeking large loan amounts, offering loans between $3,000 and $100,000. It can be an excellent choice for those needing significant ticket financing with no origination fees and competitive interest rates.

Loan amounts: $3,000 - $100,000

APRs: 5.99% - 19.99%

Origination fee: 0%

Payoff period: 12 - 60 months (some lenders offer periods of 84+ months)

Approval/funding timeline: Up to 4 business days

Minimum credit score: Reportedly 660 (It offers secured loans to people with bad credit.)

2. Overall: TD Bank

A general option is TD Bank, which provides loans ranging from $2,000 to $50,000 with competitive APRs and no origination fees. It's a versatile option for various financing needs.

Loan amounts: $2,000 - $50,000

APRs: 6.99% - 18.99%

Origination fee: 0%

Payoff period: 12 - 60 months

Approval/funding timeline: 2 - 6 business days

Minimum credit score: 660 with an existing TD checking/savings account; 750 otherwise

3. Best for People Without SSN: Upgrade

Upgrade allows borrowers to use a passport instead of a Social Security number if they don't have one. With flexible repayment terms, it's an accessible choice.

Loan amounts: $1,000 - $50,000

APRs: 8.24% - 35.97%

Origination fee: 1.85% - 8.99%

Payoff period: 24 - 84 months

Approval/funding timeline: 2 - 6 business days

Minimum credit score: not disclosed (reportedly 620)

4. Best for Quick Funding: Achieve Personal Loans (formerly FreedomPlus)

For borrowers needing quick funding, Achieve Personal Loans provides simple application procedures, immediate approval, and fast financing within 24 hours for borrowers needing quick funding.

Achieve Personal Loans is also a good option for paying off credit card debt through debt consolidation. It offers interest rate discounts for direct creditor payments and has a simple application process.

Loan amounts: $5,000 to $50,000

APRs: 7.99% to 29.99%

Origination fee: 1.99% - 6.99%

Payoff period: Up to 60 months

Approval/funding timeline: As little as 24 hours

Minimum credit score: Not specified

5. For Multiple Loan Terms and Borrower Perks: SoFi

SoFi offers various loan terms and valuable perks, such as unemployment protection and career coaching. With loans available for different durations, it's a flexible choice for borrowers.

Loan amounts: $5,000 to $50,000

APRs: 8.99% to 23.43%

Origination fee: Origination fee: 0%

Payoff period: 24 - 84 months

Approval/funding timeline: Next business day

Minimum credit score: 680

6. Best for Home Renovations and Major Expenses: LightStream

LightStream is ideal for borrowers looking for significant expenses, offering loans up to $100,000. With low-interest rates and a focus on financially responsible applicants, it's a reliable choice.

Loan amounts: Up to $100,000

APRs: Not specified

Origination fee: 0%

Payoff period: Varies depending on loan amount and purpose

Approval/funding timeline: Not specified

Minimum credit score: Not specified, but focuses on financially responsible applicants

10. Frequently Asked Questions

1. Is a co-signer always necessary for obtaining a personal loan?

No, it's not always required. You will only need someone to co-sign if you satisfy the lender's eligibility criteria.

However, your credit score could be better for getting approved or obtaining a lower interest rate. Consider cosigning a loan with someone you trust, like a family member or a reliable friend.

2. What are the consequences of failing to repay a co-signed loan?

If you default on a co-signed loan, there are two possible outcomes:

a) The co-signer can take over the loan payments until it's fully paid off.

b) If both parties fail to make the payment, it damages the credit scores of both you and your cosigner. Even worse, your debt may be delivered to a collections agency, which could file a lawsuit, garnish wages, or take other legal actions against one or both parties.

3. What qualifications are necessary for a co-signer on loan?

Generally, lenders apply the exact eligibility requirements to both co-signers and borrowers. The co-signer must meet the loan's credit prerequisites and provide pertinent information about their income or employment status.

4. Does co-signing or co-borrowing a loan affect the individual's credit score?

Yes. Initially, the loan may increase the co-signers or co-borrowers debt-to-income ratio, impacting their credit score.But in the long term, there won't be any negative impact on both parties' credit scores as long as monthly payments are made on time and the loan is fully repaid without accruing new debt. Failing to make timely payments can harm their credit score.

5. Is it possible to get an online personal loan with a co-signer?

Yes. Some online lenders support co-signers on personal loans. You can check with them about the co-signing policy before choosing a lender.

6. What minimum credit score is required for a co-signer on a personal loan?

The requirements for the minimum credit score can vary among different lenders, but typically, having a credit score above 650 can help get better interest rates and terms. A co-signer should ideally have the required credit score, although not all lenders may impose this requirement.