Co-applicant vs. Cosigner: What’s the Difference?

Getting a loan with bad credit can be a challenge, but if you have a friend or family member with good credit, they might be able to help. When you apply for a loan with a co-applicant or with a cosigner, the lender will consider their credit score and income along with yours. But it’s important to understand the differences between these roles and what a cosigned loan and a joint loan each entail.

What is a co-applicant?

A co-applicant, or co-borrower, is someone who applies for a loan jointly with another applicant. This would be the case if you plan to use the funds for something that benefits both of you, like buying a home or a car. Many lenders allow co-applicants, so if you want to apply for a personal loan, auto loan, or mortgage with someone else, you have plenty of options.

When you apply with a co-applicant, you should be aware of the following:

• The lender will check the co-borrower’s credit and income and consider the info when deciding whether to approve the application and determining the interest rate and any upfront fees.
• If approved, the lender may report the loan to the three major credit bureaus, and it will appear on the co-borrower’s credit report as well as your own.
• The co-borrower will have equal access to the loan funds or the assets purchased with the loan.
• The co-borrower will be equally responsible for making payments on the loan.
• Missed or late payments will harm both applicants’ credit scores.

In some situations, it might make sense for your co-borrower to apply for a personal loan on their own instead. For example, if you and your spouse want to take out a personal loan to make home improvements, and your spouse’s credit score is significantly higher than yours, applying jointly could result in higher borrowing costs than if your spouse took out an individual loan.

On the other hand, if you need both incomes to meet the lender’s minimum income requirements, applying jointly could be the only way to get approved.

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What is a cosigner?

A cosigner is someone who guarantees the loan if the borrower fails to repay. However, a cosigner doesn’t have access to the loan funds. When you apply with a cosigner, you should be aware of the following:

• If the cosigner has a better credit score than you and/or a higher income, it may help you get approved for the loan or get a lower interest rate.
• The loan may appear on the cosigner’s credit report, and their credit score may be harmed if you miss a payment.
• The cosigner won’t have access to the funds or be able to make changes to the loan.
• The cosigner will be obligated to make payments if you default.

Because of the risk to the cosigner’s credit, you should ensure you can afford repayment before you sign the loan agreement. Review your budget with your cosigner prior to applying. If you miss payments and leave your cosigner on the hook, it could damage their credit and finances, and cause a rift in the relationship.

If you’re considering cosigning on a personal loan, student loan, or any other type of loan for a friend or family member, weigh the potential risks with the benefits you’re providing for the borrower, and ensure you have the means to pay the loan if the borrower defaults.

Personal loans with cosigners

Not all personal loan lenders allow cosigners. We’ve rounded up some of the best personal loans with a cosigner option to provide a starting point for your research. It’s a good idea to prequalify with a handful of lenders to get a sense of the loan rates and terms you may qualify for.

Why would a borrower get a cosigner for a loan?

Some people may have a hard time qualifying for a loan. Bad credit, no credit history, and insufficient income are all barriers to getting approved for a personal loan. Someone who isn’t eligible on their own may ask a friend or family member for help. The cosigner can also help you get a lower interest rate, avoid fees, or access higher borrowing limits and better terms.

Cosigner requirements

Cosigners generally need to meet at least the same requirements as the primary borrower when applying for a personal loan. These requirements vary by lender, but a cosigner will typically need:

• Good credit: The lender will check the cosigner’s credit score to make sure it meets the lender’s requirements.
• Sufficient income: The lender will determine that both the borrower’s and cosigner’s incomes are sufficient to repay the loan.
• A positive payment history: If the cosigner has delinquencies on their credit report, the loan application may not be approved.
• A low debt-to-income ratio: The lender will evaluate the cosigner’s existing debts to make sure they can afford an additional loan based on their income.

Methodology

Credible evaluated the best personal loans with a cosigner based on factors such as customer experience, minimum fixed rate, maximum loan amount, minimum credit score and income requirements, funding time, loan terms, fees, discounts, and (of course) whether cosigners are accepted. Credible’s team of experts gathered information from each lender’s website, customer service department, in-house resources, and via email support. Each data point was verified to make sure it was accurate at the time of publication

FAQ

Do cosigners build credit?

As the borrower makes on-time payments on the loan, both the borrower and cosigner will build positive credit history. The borrower won’t build more credit history with a cosigner than with an individual loan, but the cosigner may help the borrower get approved for an affordable loan. On-time payments on the loan can then build credit. Conversely, late or missed payments can hurt both the borrower’s and the cosigner’s credit.

Do cosigners need good credit?

Yes. Cosigners provide assurance to the lender that the loan will be repaid. In order for the lender to view the cosigner as a safety net in the event the primary borrower defaults, the cosigner needs to have good credit, sufficient income, and a positive payment history.

What’s the difference between a guarantor and a cosigner?

While a cosigner is responsible for all payments throughout the life of a loan, a guarantor is only required to take on responsibility for the loan if the primary borrower enters default. Becoming a guarantor won’t affect your credit, while becoming a cosigner may positively or negatively impact your credit, depending on the primary borrower’s payment behavior.