If you need money but have no credit or bad credit, you may find it difficult to secure a personal loan. In that situation, you may want to consider either a co-applicant or cosigner as a way to increase your chances of a successful application. Although some people use the two terms interchangeably, a co-applicant and cosigner are technically different.
What is a Personal Loan?
A personal loan is just a loan from a private lender that can be used for a variety of reasons including medical bill expenses, car repairs, home improvement, debt consolidation, vacation, and more. In many cases, lenders do not require collateral because many personal loan lenders deal with unsecured personal loans.
While no collateral is required, an unsecured loan application still poses some challenges. For instance, to qualify for an unsecured personal loan, you must have good credit, or you must appear low-risk and trustworthy in the lenders eyes. It is for those who are deemed un-creditworthy who are in need of a personal loan that may want to obtain the help of a cosigner or co-applicant.
What is a Co-Applicant or Co-Signer?
Before you reach out to someone to help you secure a personal loan, you should know the difference between a co-applicant and co-signer.
A co-applicant, which is also called a co-borrower, is an equal partner in the loan transaction or on the account. In other words, you and your co-applicant have the same responsibilities and rights when it comes to your personal loan. Equal rights to the loan means the co-applicant has equal authority to utlize the funds from the loan, but they also share the responsibility of paying back the loan.
The other option is to consider a cosigner. If you have no or bad credit as an applicant, you can rely on the credit history of a cosigner. Just like a co-applicant, applying for a personal loan with a cosigner can likely increase your chances of receiving one, if they have good credit. However, a cosigner has no obligation to pay the loan unless the primary borrower falls into default. Additionally, a cosigner does not have access to the funds in the way that a co-applicant does.
Cosigners are commonly used for personal loans and other products such as private student loans. Most often, using a co-applicant is a strategy used to take out a mortgage as opposed to taking out a personal loan, although you could still use one for a personal loan.
Lenders That Accept Cosigners and Co-Applicants
Only certain lenders allow applicants to add a cosigner or co-applicant. You can see some options below:
5.34% – 16.99%
2 – 7 years
$5,000 – $100,000
6.95% – 35.89%
2 – 7 years
$1,000 – $40,000
How Can a Cosigner Help You Get Approved for a Personal Loan?
A cosigner or co-applicant helps you get approved for a personal loan by offering their credit history so to speak. To qualify for a loan, the lender will pull your credit report and review your financials. Based on the outcome of this examination, the lender approves or denies the loan request.
If you have a low credit score, then you may not get approved, but you can try to take out a personal loan with a cosigner or co-applicant, to help increase your chances. The lender would pull his or her credit along with yours, and their established financial and credit history lends support to your application and de-risks the loan for the lender.
What Are the Risks for a Cosigner?
The biggest concern for a cosigner is their financial standing. If the loan goes into default, the lender has the right to make a cosigner responsible for paying the debt. If they cannot handle this, then their credit history will suffer. Additionally, any negative marks or late payments during repayment (even if a borrower resumes payments later) will affect the credit of both the cosigner and borrower.
Do Online Personal Loan Companies Allow You to Apply With a Cosigner?
Today, you can find loans online almost easier than you can in person. However, if you need a cosigner to get approved and you prefer to use an online lender, it is essential that you check first to make sure this is a viable option. Only a handful of online lenders allow cosigning today, although it is expected that more companies will provide this feature in the upcoming years. While that dramatically limits your choices, at least online, you can still get a loan by going through a local bank, credit union, or financial company.
When you ask someone to be a co-applicant or cosigner, you are essentially asking that person to be responsible for your loan should something go wrong. Even if you have the best of intentions, you have no guarantees in life. An unfortunate event could leave the financial responsibility and impact of your loan to the cosigner or any other partner on the loan.
Author: Jeff Gitlen
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