A personal loan is a financial tool that may help you reach your financial goals, whether you need to cover an emergency car repair, consolidate high-interest debt, or pay for a medical expense. However, it can be challenging to qualify for personal loans online if you’re working to improve your credit score or establish it for the first time. This is where a cosigner may help. In this article, we’ll cover what a cosigner is and how they may help you get a personal loan.
What is a Cosigner on a Loan?
A cosigner is a person who agrees to sign for a loan alongside you. They essentially become a second applicant, and as such, the lender will also review their credit history, credit score, income, and other factors when making the lending decision.
The role of the cosigner is not one to be taken lightly. By agreeing to cosign the loan, the cosigner is taking legal responsibility for ensuring the loan is paid if you’re unable to do so. For this reason, discussing the terms of the loan agreement with your cosigner upfront can be a good idea. If you don’t have a clear and achievable plan to repay the loan, the cosigner could find themselves on the hook for making the payment.
What to Consider Before Asking Someone to Cosign a Loan
Cosigning is a large responsibility, so you’ll want to be cautious about who you approach and how you position it. Before you ask someone to cosign a loan, consider the following:
- Do you have the means to repay the loan balance in full each month? You’ll want to share your detailed budget with a potential cosigner so they understand that you have a plan to make timely payments. Be sure to include any savings you may be able to use to cover the payment if you were to lose your income.
- Is your cosigner willing and able to pay for the loan in the event of job loss or financial catastrophe? Life happens, so consider how the loan will be paid if you lose your job or fall on hard financial times.
- Does your cosigner have a good credit score? Much of the benefit of getting a cosigner for a loan is that you may qualify for a more favorable interest rate using the cosigner’s credit score instead of your own. Check your credit score alongside your cosigner to determine how much you might be able to save on interest by having them on the loan.
There are several simple steps to get a personal loan with a cosigner:
- Find the right cosigner. You’ll want to choose a close friend or family member you trust who also trusts you to cover the loan payment. Make sure this person has a good or excellent credit score and is financially stable. They should understand the obligations as a cosigner and be willing to cover the cost of a loan if you can’t. They’ll also need to keep in mind that the loan will be reported to credit bureaus as theirs, so there could be an impact on their credit score.
- Choose a reputable lender. Shop around to find the right personal loan that suits your needs. Look for a reputable lender while also weighing other factors like interest rates, fees, loan terms, and loan amounts. Make sure the lender allows for cosigners.
- Gather documentation and submit an application. You’ll need to submit personal and financial information for both you and your cosigner. Lenders may vary in the information they require, but generally, you’ll need to provide personal details like your address and proof of identity, as well as financial details, like your credit score and income.
- Sign for the loan. If approved, your lender will share paperwork for your and your cosigner’s signatures. Read the loan documents carefully to understand the expectations for repayment, including any applicable fees.
- Receive funds and begin repayment. Many online lenders issue funds within a few business days, meaning you can quickly receive your money and use it to meet your financial needs. Then, you’ll begin repaying the loan balance according to the agreed-upon schedule.
The Bottom Line
Having a cosigner on a personal loan may help you get approved for loans you otherwise couldn’t get due to a low or absent credit score. Choosing an appropriate cosigner means finding a friend or family member who is willing and able to meet the loan obligations if you can’t. By getting a personal loan with a cosigner, you can get help building your credit and furthering your financial future.
