What is a Cosigner Loan?
If you have less than ideal credit or no collateral to put down, it can be difficult to get a personal loan with a low interest rate. This is where cosigning a loan can really help.
With a low credit score (620 or lower), you stand to face some real reluctance, if not just flat out rejection, with many lending houses. Even if you are approved you stand to pay a high interest rate of 15% or higher. If you have a cosigner with good credit and stable income though, you can apply for a loan using the cosigner as an insurer of sorts for the loan, allowing you to attain a loan with conditions that are easier to keep up with.
A cosigner agrees to cover the payments if you default, serving as collateral for the loan.
Lenders That Accept Personal Loan Cosigners
A number of online lending companies provide cosigned loans, here’s a look at some of the main companies:
|Loan Provider||Loan Amount||APR||Terms|
Up to $40,000
6.95% - 35.89%
Up to $100,000
5.74% - 16.99%
Up to $25,000
18.49% - 35.99%
Up to $50,000
4.79% - 35.99%
Best for: Cosigners with credit score of 600+
♦ Apply online in minutes ♦ Get your money in as little as few days ♦ Make fixed monthly payments ♦
Min. Credit Score: 600
APR: 6.95% - 35.89%
Loan Amount: $1,000 - $40,000
Loan Term: 3 to 5 years
Time to Funding: usually up to 7 days
One of the biggest peer-to-peer companies in the industry, LendingClub matches borrowers with a wide range of lenders, including those who provide cosigned loans. The loans you can find on LendingClub range from $1,000 to $40,000, with APRs ranging from 6.95% - 35.89%. The cosigner only needs to have a credit score of 600 (“poor” is 550-649) and the borrower only needs as high as 540.
Best for: Joint applications for cosigned loans
♦ Low rates ♦ Same day funding ♦ Loan amounts up to $100K ♦
Min. Credit Score: 660
APR: 5.74% - 16.99%
Loan Amount: $5,000 - $100,000
Loan Term: 2 to 7 years
Time to Funding: as soon as same day
The personal loan division of SunTrust Bank, LightStream, is a good option for people looking for flexible loans ranging from $5,000 to $100,000. The company can provide loans within the same day, with APRs ranging from 5.74% - 16.99%. And best of all, LightStream accepts joint applications for cosigned loans, as long as one of the applicants has excellent credit (750-850).
Best for: Personalized loans tailored to borrowers with cosigners
♦ No pre-payment penalty ♦ Fixed rates and fixed payments ♦ Money as soon as same day ♦
Min. Credit Score: none
APR: 18.49% - 35.99%
Loan Amount: $1,500 - $25,000
Loan Term: 2 to 5 years
Time to Funding: same day up to 3 days
OneMain Financial prides itself on providing a personalized experience tailor-made for your needs, including with cosigned loans. The interest rates tend to be rather high, ranging from 18.49% - 35.99% for personal loans of $1,500 to $25,000. Borrowers with collateral can potentially take out loans for even higher, and this is especially useful if you're looking to do this with a cosigner. There is no minimum credit score requirement and the funds can be in your account within a day, which makes it a very attractive option. After you start your application online, in order to complete the process OneMain asks that you visit one of its branches.
Best for: Comparing a variety of loan options
♦ All FICO scores welcome ♦ Long repayment terms ♦ Good terms for cosigner loans ♦
Min. Credit Score: none
APR: 4.79% - 35.99%
Loan Amount: $1,000 - $50,000
Loan Term: 3 months to 15 years
Time to Funding: usually up to 7 days
LendingTree makes it very easy to compare lenders against one another, which should help you find a loan that’s better for you, especially if you're looking for a loan with a cosigner. LendingTree connects users with lenders who can provide loans of between $1,000-$35,000, with repayment terms of 3 months to 180 months. The company also doesn’t require a set minimum credit score, though keep in mind that with a lower credit score you will probably receive a loan with less friendly terms. In order to receive more favorable terms, you can apply for a loan with a cosigner from one of LendingTree's network partners.
Why Apply for a Personal Loan With a Co-Signer?
The main reason to pursue a personal loan with a cosigner is that you may be able to qualify for a loan that you wouldn't receive otherwise. If your cosigner has better credit than you and reliable income, then together you can qualify for a loan with a much friendlier interest rate that can really help your bottom line.
If you enter into a co-signed loan, you can repair your credit history and improve your score by paying off the loan. This can help you establish a positive credit history, and the co-signer can also build more good credit through the shared loan.
If you have other outstanding loans with high interest rates, a co-signed loan can allow you to take out a big enough amount of money to pay off your higher interest loans, bringing all of your debt under one lower interest rate.
What Are the Risks?
The cosigner is on the hook for the loan so if you miss the payments they stand to take a serious hit to their credit rating. With a cosigned loan you increase the number of people at risk of financial harm if the loan is not paid on schedule.
If the cosigner’s credit isn’t much higher than yours, then the terms you get might not be good enough to offset the risk you’re asking the cosigner to undertake.
A hard credit history pull could potentially harm the co-signer's credit from the get-go.
How Does it Work?
When you have a cosigner loan, there is less risk involved for the loan provider, therefore they are able to offer better rates and lower monthly repayments.
A $10,000 personal loan at 15% interest over 5 years will cost $237.90/month, and after 60 months you will have paid a total of $14,274 by end of term. The same loan with a cosigner, brought down to a friendlier 10% interest rate, will cost $212.47/month for a total of $12,748.20 by the end of the term.
|With Cosigner||Without Cosigner|
How Do You Find a Cosigner?
Mixing family and business is... complicated. Typically a cosigner will be someone close to you - a parent, sibling, or even an in-law. This can be a rather uncomfortable cloud hanging over the relationship, and if you default, it could harm your personal relationship with the cosigner. Therefore, when choosing a cosigner, make sure it's someone you trust and that you have a good relationship with.
Choosing someone you're close to is important, but you also need to make sure that they are actually financially stable and will be able to help you out if you run into difficulties. Take the time to ask them about their financial status to confirm that they indeed have a reasonable credit score and solid borrowing history. While this can be a sensitive subject, it shouldn't be a problem if the person you choose is either a family member, close friend or a trusted work colleague.
Bad credit can get you down, but by no means does it have to be a deal-breaker if you’re looking for a personal loan. With a cosigner in hand you can receive a personal loan that can help you consolidate debt or just give you a little more breathing room financially. So take a look around and find a lender with terms that work for you.
See our in-depth reviews of the top personal loan providers for more information.