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When applying for a loan on your own, you risk getting denied if you have a lower credit score. Some lenders might work with you, but many see a low credit score as risky and may just offer higher rates.
If you’re running into that issue, you might want to find a cosigner. A cosigner can help you qualify for a loan you otherwise wouldn’t, and also might help you secure a better interest rate.
Here’s what you should know about getting a cosigner:
- What is a cosigner?
- Why use a cosigner?
- How to find a cosigner
- Student loan cosigner requirements
- What to do if you can’t get a cosigner
What is a cosigner?
A cosigner is a person — usually with good to excellent credit — who agrees to share responsibility for your loan. Your cosigner will be named on the loan, and if you fail to make the payments, your cosigner will be legally obligated to do so.
The payment history on your loan will affect your cosigner’s credit along with yours.
Although not all lenders allow cosigners, you can usually apply with one on many types of loans, including:
- Private student loans
- Student loan refinancing
- Personal loans
- Mortgages
- Auto loans
Why use a cosigner?
Having a low credit score can be a dealbreaker with lenders. They equate bad credit with irresponsible credit use. Whether you haven’t done well managing other forms of credit in the past, or you have a sparse credit history, a low score can have a negative impact.
Here are some of the times you might want to consider a cosigner:
Using a cosigner for student loans
You may need a cosigner when you’re applying for private student loans. If you’ve exhausted all your federal funding options, like grants, scholarships, and federal student loans, you might turn to private student loans to fill in some gaps. While federal student loans don’t check credit scores for federal loans (except PLUS loans), private student loans require it.
If you’re a first-time college student then you’re probably new to borrowing money. This means you might have bad credit — or no credit history at all — which means you might need the help of a cosigner.
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Using a cosigner for student loan refinancing
If you’re struggling to make payments on your student loans, you might want to consider refinancing your student loans. This is when you take out a new loan, pay off all your old loans, and then make one payment to your new loan every month until it’s paid off.
You might be able to get a lower interest rate, and some student loan refinancing companies will work with you even if your credit score isn’t so great. But sometimes you might need to refinance with a cosigner if you can’t qualify on your own. A cosigner with good credit could help you secure an even lower interest rate, too, even if you can qualify by yourself.
Find Out: How to Get a Student Loan Without a Cosigner
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Using a cosigner for personal loans
If you need to consolidate debt or finance a bigger purchase, you might want to consider taking out a personal loan. But if you’re having trouble getting approved for one on your own, a cosigner can increase your chances and even allow you to get a better interest rate.
Although you can’t get a personal loan with a cosigner through Credible, you can still compare rates from all of our partner lenders to see if you can qualify on your own. It won’t affect your credit either!
Keep Reading: Getting a Personal Loan With a Cosigner
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How to find a cosigner
Finding someone that trusts you enough with their credit is a big deal — and shouldn’t be taken lightly. A cosigner agrees to repay your loan in the event you don’t, so they should be someone you trust and who trusts you — like a parent, close friend, spouse, sibling, or another relative.
It’s important to prepare before you even ask someone to be your cosigner.
Here are a few things you can do:
- Have a plan: Know how you’re going to handle your loan once it gets approved with your cosigner’s help. You and your cosigner should have a plan in place for when you’ll make payments and what happens in case you can’t make payments on time.
- Use teamwork: Go through the loan process together so your cosigner has an understanding of everything it entails. It also helps you to have someone to talk about it with in case you’re unsure of how something works.
- Know the risks: While you’re using their good credit score to help you qualify for a loan, there are some risks involved. For example, if you don’t pay your loan back on time, your credit score will take a hit and so will your cosigner’s.
- Be open and honest: Don’t shy away from talking about the risks involved with being a cosigner and what happens if you don’t follow through with payments. Also, don’t be afraid to talk about your current financial state, what you earn, and how you’re trying to improve your credit and your finances.
Student loan cosigner requirements
Virtually anyone can act as a cosigner for you, although family members are the most common cosigners for student loans. But they’ll need to fulfill some requirements, including:
- Be willing to do the paperwork. Your cosigner will likely have to complete an application of their own, or complete your application with you.
- Have good to excellent credit. In order to help you qualify for the best rates available to you, your cosigner should have solid credit scores. Generally, people with higher credit scores can qualify for lower interest rates.
- Meet the lender’s income requirements. Many lenders require cosigners to have a certain level of income.
- Be a U.S. citizen or permanent resident. Your lender may require your cosigner to be a citizen, or a non-citizen with permanent residency status in the U.S.
- Be willing and able to repay the loan if you can’t. If you’re unable to repay the loan, the lender will expect your cosigner to make the payments. They should be financially able to carry the payments without straining their own finances.
What to do if you can’t get a cosigner
Even though having a cosigner could make or break your loan approval, not everyone has the option of getting one (and not every lender allows it).
If you don’t have access to a cosigner, you should take the time to improve your credit. Here’s how to get started:
- Make all your payments on time: If you have loans and credit cards, start making at least the minimum monthly payments on time. Payment history is your biggest factor in boosting your credit score, and on-time payments can drastically help. The more you can pay each month, the better.
- Lower your credit usage: If you have credit cards, try to use them as little as possible and work on paying them off in full every month. The amount you owe is also a big determining factor in your credit score.
- Check your credit report: Credit reports can sometimes contain mistakes. If you find errors on yours, you can dispute them with the credit bureaus. Removing inaccurate negative information could help your credit score.
- Become an authorized user: If you don’t have much credit at all, you might take the time to build your credit. See if you can become an authorized user on a credit card account. You don’t need to use the card to boost your score; you simply reap the benefits of their great score.
- Consider a credit union: Because they’re member-owned, credit unions often have more flexible qualifications than other types of lenders. Of course, you’ll need to qualify as a member of the credit union before applying for a loan.
- Borrow from a family member or friend: If getting a cosigner isn’t an option, you might find a loved one willing to loan you the money. Just be sure to agree to a set payment schedule — with interest. And work on other ways to build your credit while you’re repaying the loan from your friend or family member.
Even if you don’t have the option of a cosigner right now, you can build your score so you can eventually qualify for a loan and a better interest rate by yourself.
Jamie Young contributed to the reporting for this article.
