Personal loans can play a key role in your financial planning for a variety of reasons. Perhaps you want to take pay for a wedding or need short-term money to replace some appliances in your home. Maybe you’re trying to pay off some credit cards or consolidate other debt. Whatever your goals, a personal installment loan can be a good way to help you accomplish them — if you can get approved.
Personal loans don’t need collateral like auto loans or mortgages, and they’re based more on your creditworthiness as a borrower. That can make things a bit more complex if you have a shaky credit history, and that’s where a cosigner comes into play. If you have a cosigner, you may be able to get approved for a loan you couldn’t get on your own — and for a lower interest rate that saves you money in the long run.
On this page:
- When Would You Need a Cosigner for a Personal Loan?
- Lenders Offering Personal Loans With Cosigners
- What Are the Risks for a Cosigner?
- Tips on Choosing a Cosigner for a Personal Loan
When Would You Need a Cosigner for a Personal Loan?
Credit scores have several different scales, but they typically run from 300 to 850, with 850 being the highest FICO score available. Anything over 700 is considered good or excellent credit, and anything under 600 is considered poor or bad credit. The space between 600 to 700 is fair to average.
The credit score required for a personal loan depends on the lender, but you should expect to see a minimum of about 580 to 600 for most traditional lenders offering unsecured loans. Some lenders won’t go below 620. The higher your credit score, the more likely you are to be approved. Additionally, you’ll pay less in interest over the life of the loan.
Your score is affected by everything from how much credit you already have available to you to how much of it you’re using, and whether you’re making your monthly payments on time. If your credit report is less than stellar, banks and other lenders will see you as a higher risk and they may be more inclined to deny your loan application.
>> Read More: Best bad credit personal loans
If you do get approved on your own with poor credit, you’ll receive worse loan terms than someone else with a higher credit score. If you’re finding yourself having a hard time getting a decent interest rate or getting approved at all, it may be time to think about getting a cosigner.
A cosigner is someone who signs the loan paperwork with you, essentially promising that if you default on the loan, they’ll make the payments and ensure that the loan is paid back in full and on time. From a lender’s perspective, this is a good thing. It decreases the risk they’re taking on by approving your loan. Since the cosigner has solid credit, the likelihood that they’ll step up and fulfill the loan’s obligation if you don’t is high.
A personal loan cosigner can also help get you a lower interest rate. Typically, a lender is more willing to offer those coveted lower rates if the risk on the loan is low, which is exactly what a personal loan with a cosigner brings.
Lenders Offering Personal Loans With Cosigners
While traditional lenders often accept a cosigner, many of the newer online loan providers do not. A good rule of thumb is that if you can walk into a branch and apply for your loan with an in-person banker, chances are good that they’ll accept a cosigner — especially if that cosigner has bank accounts with that financial institution already. With online lenders, however, you’ll want to find out whether they’ll take a cosigner before beginning the application process.
Local Credit Unions
Credit unions are one of the best places to start looking for an unsecured personal loan with a cosigner. They’re nonprofit lenders that are usually managed locally, and in most cases, they’re owned by their members. Because they’re different than banks, they can often work more closely with you to find a loan option that works, and they’re more likely to accept a cosigner if you have one in mind.
>> Read More: Credit union personal loans
Citizens Bank is a large lender that doesn’t turn away applicants with a credit score under 700. They also accept cosigners, so your chances of getting accepted are much higher. You can borrow between $5,000 and $50,000 with no origination fees or prepayment penalties. To apply, you’ll need a minimum annual income of $24,000 and you must be a U.S. citizen or permanent resident. Your rate depends on your or your cosigner’s credit report.
FreedomPlus is another online lender that accepts cosigners. Their loan amounts range from $7,500 to $40,000, and interest rates are dependent on your online application. You can check your projected rate without initiating a credit check, so you know if you need a cosigner before you actually apply. There are no hidden fees, with a same-day approval process that means you can get your money within two business days of applying.
OneMain Financial offers loans of $1,500 to $30,000 at annual percentage rates starting at 16.05% and running up to 35.99% APR. The higher rates reflect OneMain’s willingness to approve loans for applicants with less than perfect credit. They do accept cosigners as well, and loan terms are flexible up to 60 months.
LightStream, a division of SunTrust Bank, offers online lending and accepts cosigners. They fund everything from cars to debt consolidation, remodeling, medical debt, weddings, or anything else you can think of using a personal loan for. Their rates start at only 3.34% APR for those with good credit or a good cosigner. That rate can climb to as high as 16.99% APR if you have poor credit. Terms can go from 24 months to 144 months for higher amounts. You can borrow between $5,000 and $100,000 depending on your credit and personal needs.
What Are the Risks for a Cosigner?
Being a cosigner carries a lot of responsibility, and before you ask someone to cosign your loan, you should understand exactly what you’re asking for. A cosigner essentially offers their own credit history as collateral for the loan. If you make the payments on time and pay the loan off, they lose nothing. However, if you cannot or do not make the necessary payments, your cosigner is on the hook. And if their financial situation has changed or they are otherwise unable to make your payments for you, their credit can take a major hit.
Tips on Choosing a Cosigner for a Personal Loan
Because of the risks, cosigners are usually family members or significant others, although anyone who is willing to cosign your loan may be approved if the lender accepts them. That doesn’t mean, however, that you should use anyone who is willing.
A good cosigner is one that your lender will view as very low risk. They’ll have a healthy, steady debt-to-income ratio that’s easily documented with direct deposits or check stubs. They’ll also need a good credit history, with several years’ worth of responsible credit use. It will also help if your cosigner has managed different types of credit, such as an auto loan, mortgage, and credit cards. Paid off loans, credit cards with very low or no balances, and no history of late payments can also help significantly.
Before you ask someone to cosign your loan, you’ll want to have a contingency plan. If you can’t pay your loan, do you have a fallback plan besides relying on your cosigner to pick up your payments for you? If you lose your job or are otherwise unable to meet your obligation, you’ll want to have another plan in place that doesn’t require your cosigner to suddenly assume your payments. Not only is that being financially responsible, but it will also help your cosigner feel more comfortable about saying yes.
When you ask your prospective cosigner to help, make sure you that you outline your plan for staying on top of the loan payments yourself. Be open about your financial situation, and about any emergency plans you have in place to help protect them and their credit from suddenly having to make your payments.
If the person you had in mind chooses not to cosign your loan, all is not lost. Understand that it’s a big risk for them and don’t get angry. You still have other options. There are many lenders out there that serve subprime borrowers, and while you’ll pay more in interest, you’ll get the money you need. Paying it back on time will help your own credit. That means next time you need a loan, you may not need a cosigner at all.
Getting a personal loan is sometimes necessary, even if you have poor credit. Having a cosigner can help make things easier and less expensive. Make sure you have a solid plan to pay back your loan and do the research necessary to find the right lender and the best personal loan rates available for your needs.
Author: Jeanette Perez
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