If you’re thinking about getting a cosigner on a personal loan, there are a few things you’ll need to think about before you apply. We tackle some of the big issues, including when it makes sense to have a cosigner, what lenders offer cosigned loans and what alternatives exist, in the article below. Show
When Should I Use a Cosigner?There are a few situations and circumstances where it makes sense to have a cosigner on your personal loan:
Low credit score or no credit history: Having a low credit score or no credit history usually means an automatic rejection for most personal loans. Even with online lenders, which have laxer requirements than banks, you’ll need to have enough credit history to produce a FICO score, and this score should be 600 or above to give you a chance of qualifying somewhere. If you’ve never had a credit card or applied for a loan, there’s a chance you won’t have enough history to produce a score. Low income or short employment history: Another factor that could prevent you from getting approved is your income and employment history. This is particularly true for recent college graduates, those who just switched jobs or those with unpredictable income (i.e., freelancers, contractors, commission-based workers). Lenders want to see borrowers who have steady income that’s high enough to support repayment on the loan. That’s why many lenders have strict income cutoffs. Citizens Bank, for instance, requires borrowers have at least $24,000 in annual income. High debt-to-income ratio: Even if you are applying for a debt consolidation loan, lenders still don’t want to see borrowers with debt-to-income (DTI) ratios above 40% to 45%. Like the income requirement, this has to do with your ability to repay. If your DTI ratio is too high, there’s a big risk that you could miss a payment or even default on the loan. DTI ratio is a measure of your monthly debt and housing payments divided by your pre-tax income. Let’s say your pre-tax monthly income is $4,000. You have a mortgage, a car loan and some student loans, which come to $1,200 a month. Your debt-to-income ratio would therefore be 30% ($1,200 ÷ $4,000). Any or a combination of these factors could mean a rejection of your application, or a very high interest rate if you are approved. In this case, having a cosigner can improve your chances at approval and securing a low interest rate if your cosigner has good credit. What to Look for in a CosignerBecause lenders consider your cosigner’s creditworthiness and information when making a loan decision, you’ll want a cosigner who has good to excellent credit history, several years or more of credit history, stable income, good employment history and a low debt-to-income ratio. You should also know the cosigner well, because he or she will be putting their credit on the line for you. People most commonly cosign loans for their family members, particularly children, spouses and parents. Where to Get Personal Loans with a CosignerMost banks and credit unions allow you to have a cosigner on a personal loan. In many cases, you and the cosigner will need to be a member of the bank. There are a few banks, like Citizens Bank, PNC Bank and TD Bank, that will let you apply for a personal loan without being an existing customer. It’s harder to find an online lender that allows cosigning on personal loans -- in fact, we have only found a handful of them in our research.
Alternatives to Cosigned Personal LoansIf getting a cosigner is not an option, we recommend considering a secured personal loan or looking for a lender that caters to borrowers like you. Secured Personal LoanMany banks and credit unions allow their members to take out a personal loan secured by their savings, money market or CD account. Usually the amount of the loan cannot exceed the value of the deposit account. While securing a loan isn’t risk-free, qualifying for a secured loan will be easier, and most secured loans have pretty low interest rates. For example, Wells Fargo customers can take out a secured loan up to $250,000 with interest rates starting between 5.5% and 13.79% (as of July 2017). Navy Federal Credit Union also provides personal loans secured by your savings or CD accounts with rates 2% to 3% above your saving or CD rate. Online LoanWhile most banks and credit unions want borrowers with strong credit history and good income, many online lenders operate under a different set of requirements. Some lenders have credit score requirements as low as 600, and others only require that you have a full-time job offer instead of a current job (which can be great for recent graduates). Most online lenders will allow you to check your rate online without affecting your credit score, so we recommend shopping around to find a lender that will give you a good deal. We recommend starting with lenders like Upstart, Best Egg, LendingClub, OneMain Financial, Avant and Peerform. Can you cosign if you have bad credit?Someone with bad credit shouldn't cosign a car loan. There are very rare cases where you may be able to cosign the loan, however 99times out of 100 you will not be able to cosign a car loan with bad credit.
What credit score does your cosigner need?If you're planning to ask a friend or family member to co-sign on your loan or credit card application, they must have a good credit score with a positive credit history. Lenders and card issuers typically require your co-signer to have a credit score of 700 or above.
Does a co signers credit have to be good?Who Qualifies as a Cosigner? To be a cosigner, your friend or family member must meet certain requirements. Although there might not be a required credit score, a cosigner typically will need credit in the very good or exceptional range—670 or better.
Can you get denied even with a cosigner?A cosigner isn't a cure-all for every situation. They can “lend” you their good credit score to help you meet auto loan requirements, but if your credit reports have serious negative marks or you fall short in other areas, you could still be denied a car loan with a cosigner.
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Do you have to have good credit to cosign
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