Written by: Shir Amram
When faced with bad credit, securing a personal loan might seem impossible. Many lenders hesitate to approve loans for individuals with low credit scores. However, having a co-signer with good credit can help you qualify and even get better loan terms.
By having a cosigner with good credit, you increase your chances of loan approval while providing lenders with the added assurance that the loan will be repaid. Additionally, a co-signer can help you secure a lower annual percentage rate (APR), which significantly impacts your loan amount, monthly payments, and overcall cost.
In a Nutshell
A personal loan with a co-signer can help borrowers with bad or fair credit. With a co-signer with good credit lenders are more likely to approve your application and may get you lower interest rates and better loan terms.
However, the co-signer is responsible if you miss payments, which can hurt their credit score and finances. Both parties should understand the risks before agreeing.
If you can’t find a co-signer, consider secured loans, credit unions, or improving your credit as alternatives. Responsible borrowing and open communication are key to success.
Learn About Personal Loans with Co-Signer
Not everyone qualifies for a personal loan on their own. A co-signer with strong credit can improve approval chances, help secure lower interest rates, and provide access to better loan terms. Both the borrower and co-signer share equal responsibility for repaying the loan. Once approved, the lender typically disburses funds quickly to the borrower.
What is a Co-signer?
A co-signer is someone who agrees to back a loan, using their creditworthiness to help the borrower qualify. They do not receive the loan funds but share full repayment responsibility. If the borrower misses payments or defaults, the co-signer must step in to cover the debt. This can affect the co-signer’s credit score and financial stability.
How Does a Personal Loan with a Co-Signer Work?
Lenders assess both the borrower’s and co-signer’s financial profiles before approving the loan. The co-signer’s credit and income reduce risk for the lender, often leading to better loan terms for the borrower. The borrower makes the payments, but if they fail to do so, the co-signer becomes responsible for repaying the loan. This arrangement can help the borrower build or improve credit if payments are made on time.
Can I Get a Personal Loan with a Co-Signer if I Have Bad Credit?
Yes, a co-signer can help you get a personal loan even with bad credit. Lenders focus on the co-signer’s financial strength, which can make approval easier and improve loan terms. A strong credit history and stable income from the co-signer show lenders that the loan is less risky.
However, being a co-signer is a big responsibility. If payments are missed or late, it can affect both credit scores and create financial stress. Before applying, make sure you can manage the loan payments and that your co-signer fully understands the risks involved.
When Do I need a Co-signer for a Personal Loan?
You may not be sure if a cosigner is right for you. There are a few reasons why someone might require a cosigner.
You May Need a Co-Signer If:
- You have a low credit score or limited credit history
- You are unemployed or don’t have sufficient income
- You are self-employed
- You want a larger loan amount or lower interest rate
- Your debt-to-income ratio is high
- You are considering debt consolidation loans
How to Find a Co-Signer?
Although you can use anyone as a co-signer it is always best to find someone with good credit and stable finances who trusts you to help with your loan. Start by thinking about close family or friends who know your financial situation and are willing to help.
It’s important to talk openly about the risks because the co-signer is also responsible for the loan payments. If you miss a payment it could hurt their credit too. Make sure they understand how it might affect their credit score and finances.
Cosigner vs. Co-borrower
While both a co-signer and co-borrower are responsible for paying back a loan, their roles are different. Here’s what to know:
Co-signer: acts as a backup for the lender, agreeing to pay the loan if the main borrower can’t, but they don’t get any of the loan money.
Co-borrower: are often married couples or partners who apply for a loan together. They are equally responsible for the loan but usually share the loan money.
Note: Loan applications for co-signers and co-borrowers may have different requirements and processes. Make sure to check if the lender has a minimum credit score requirement.
Steps to Apply for a Personal Loan With a Co-signer
- Check your Credit Situation: Get an idea of where your credit score stands to determine how much a co-signer might help.
- Find a Suitable Co-Signer: Look for someone you trust with a strong credit history and stable income.
- Compare Loan Options: Not all lenders accept a co-signer. Find the ones that do and compare interest rates, origination fees and loan terms.
- Fill out Application: Submit information for both parties. Some lenders may allow you to do it online, while others require in person visits.
- Approval: If approved, review loan terms. Ensure both parties agree to the terms before signing.
- Receive Funds: Once approved the funds will be disbursed. Typically the process can take anywhere from a few hours to a business day depending on the lender.
Risk of Using a Co-Signer
Although, using a co-signer can be a positive thing for the borrower there are some risks that a person takes when agreeing to be a co-signer.
- Responsibility for the Loan: If the borrower misses payments, the co-signer must pay the loan.
- Credit Score Impact: Late or missed payments can lower the co-signer’s credit score. This could impact their ability to qualify for new loans.
- Limited Borrowing Power: The loan adds to the co-signer’s debt, which may make it harder for them to get credit in the future.
- Strained Relationships: Money issues can create tension between the borrower and co-signer. It is important to communicate.
Does Being a Cosigner Affect Your Credit?
Yes, being a co-signer can impact your credit. The loan will show up on both your credit report and the main borrower’s. If the borrower pays on time, it can help your credit. If payments are missed, it will hurt your credit score and could make it harder to get loans later. To protect your credit, keep track of the loan and ensure payments are made on time.
Pros and Cons of Being a Co-Signer
Pros:
- Helps someone get a loan they couldn’t qualify for on their own.
- Can improve your credit if the borrower makes on-time payments.
- Builds trust and strengthens your relationship with the borrower.
Cons:
- Your credit can be harmed if the borrower misses payments.
- You are legally responsible for the loan if the borrower can’t pay.
- May reduce your ability to borrow, as the loan counts toward your debt.
How Much Can I Save with a Co-Signer?
A co-signer can help you save significantly on an unsecured loan. The exact savings depend on the lender and your co-signer’s credit profile, but overall, having a co-signer can help you save.
The example below shows a savings of $2,047 on the total loan cost when using a Co-Signer:
| Without Co-Signer | With Co-Signer | |
| Loan Amount | $10,000 | $10,000 |
| Loan Term | 5 Years | 5 Years |
| Interest Rate | 15% (Without Co-Signer) | 8% (With Co-Signer) |
| Monthly Payment | $237 | $203 |
| Total Interest Paid | $4,227 | $2,180 |
| Total Loan Cost | $14,227 | $12,180 |
Lender Tip: Before paying off your loan early, check for prepayment penalties that some lenders may charge. Always compare lenders to find the best terms with no hidden fees.
Final Thoughts
A personal loan with a co-signer can be a great solution for individuals who have trouble qualifying on their own because of a bad credit score. They help you improve your chances of loan approval and potentially securing better loan terms. If bad credit is preventing you from getting the money you need, find a willing co-signer to help you borrow the funds.
Both borrower and co-signer share financial responsibilities so it is important to understand the risks involved. Open communication and a clear understanding of the loan terms are essential to ensure a successful borrowing experience. Contact us to explore your options and see if we can be a good fit for you.
Common Questions
Can I Be Denied a Personal Loan Even with a Co-Signer?
Yes, you can still be denied a personal loan even with a co-signer. Lenders may reject applications if they deem the primary borrower’s financial situation too risky or if the co-signer’s credit profile doesn’t meet their criteria.
What Credit Score Do You Need For a Personal Loan With a Co-Signer?
To get a personal loan with a co-signer, the co-signer should have good credit, usually 700 or higher, though requirements vary by lender. A strong co-signer can improve approval chances and help secure better loan terms. If the co-signer’s credit is high, the primary borrower’s credit score may be less important in the approval process.
What Are Other Options If I Can’t Find A Co-Signer?
If you have a bad credit score and can’t find a co-signer, consider options:
- Secured Loan: Use collateral like a car or savings to improve approval chances.
- Bad Credit Lenders: Some online lenders and credit unions offer loans for low-credit borrowers.
- Improve Credit: Pay off debts, make on-time payments, and reduce balances to boost your score.
- Borrow Less: A smaller loan may be easier to qualify for.
- Alternative Financing: Explore payment plans, family loans, or employer-based assistance.
Written by
Shir Amram
Shir Amram is a senior loan officer at Montana Capital Car Title Loans. With over 10 years of experience in the finance industry, Shir has been an asset in her role and has contributed significantly to our company’s success, Shir’s academic background in economics and financial knowledge helps us fulfill our education mission as she creates a valuable content to our blog.