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When applying for a loan on your own, you risk getting denied if your credit score isn’t good. There could be some lenders that work with you, but many see a low credit score as risky and might just offer higher rates.
If you’re running into that issue, you might want to find a cosigner. A cosigner can not only help you qualify for a loan you otherwise wouldn’t, but also might help you secure a better interest rate.
Here’s what you should know about getting a cosigner:
- What is a cosigner?
- Why use a cosigner?
- How to find a cosigner
- What to do if you can’t get a cosigner
What is a cosigner?
A cosigner is a person who agrees to sign onto your loan and be legally obligated with you. This can allow you to qualify for a loan you wouldn’t otherwise qualify for (and potentially get a lower interest rate than you would qualify for on your own).
Although not all lenders allow cosigners, you can usually apply with one on many types of loans, including:
- Private student loans
- Student loan refinancing
- Personal loans
- Auto loans
Why use a cosigner?
Having a low credit score can be a dealbreaker with lenders. They equate bad credit with irresponsible credit use. Whether you haven’t done well managing other forms of credit in the past, or you have a sparse credit history, a low score can have a negative impact.
Here are some of the times you might want to consider a cosigner:
Using a cosigner for student loans
You may need a cosigner when you’re applying for private student loans. If you’ve exhausted all your federal funding options, like grants, scholarships, and federal student loans, you might turn to private student loans to fill in some gaps. While federal student loans don’t check credit scores for federal loans (except PLUS loans), private student loans require it.
If you’re a first-time college student then you’re probably new to borrowing money. This means you might have bad credit — or no credit history at all — which means you might need the help of a cosigner.
Check Out: Student Loans for Bad Credit
Using a cosigner for student loan refinancing
If you’re struggling to make payments on your student loans, you might want to consider refinancing your student loans. This is when you take out a new loan and pay off all your old loans, and then make one payment to your new loan every month until it’s paid off.
You might be able to get a lower interest rate and some student loan refinancing companies will work with you even if your credit score isn’t so great. But sometimes you might need to refinance with a cosigner if you can’t qualify on your own. A creditworthy cosigner could secure you an even lower interest rate, too, even if you can qualify by yourself.
Using a cosigner for personal loans
If you need to consolidate debt or finance a bigger purchase, you might be looking into taking out a personal loan. But if you’re having trouble getting approved for one on your own, a cosigner can increase your chances and even allow you to get a better interest rate.
Although you can’t get a personal loan with a cosigner through Credible, you can still compare rates from all of our partner lenders to see if you can qualify on your own. It won’t affect your credit either!
Keep Reading: Getting a Personal Loan With a Cosigner
How to find a cosigner
Finding someone that trusts you enough with their credit is a big deal — and shouldn’t be taken lightly. A cosigner agrees to repay your loan in the event you don’t, so they should be someone you trust and who trusts you — like a parent, close friend, spouse, sibling, or another relative.
It’s important to prepare before you even ask someone to be your cosigner.
Here are a few things you can do:
- Have a plan: Know how you’re going to handle your loan once it gets approved with your cosigner’s help. You and your cosigner should have a plan in place for when you’ll make payments and what happens in case you can’t make payments on time.
- Use teamwork: Go through the loan process together so your cosigner has an understanding of everything it entails. It also helps you to have someone to talk about it with in case you’re unsure of how something works.
- Know the risks: While you’re using their good credit score to help you qualify for a loan, there are some risks involved. For example, if you don’t pay your loan back on time, your credit score will take a hit and so will your cosigner’s.
- Be open and honest: Don’t shy away from talking about the risks involved with being a cosigner and what happens if you don’t follow through with payments. Also, don’t be afraid to talk about your current financial state, what you earn, and how you’re trying to improve your credit and your finances.
What to do if you can’t get a cosigner
Even though having a cosigner could make or break your loan approval, not everyone has the option of getting one (and not every lender allows it).
- Make all your payments on time: If you have loans and credit cards, start making at least the minimum monthly payments on time. Payment history is your biggest factor in boosting your credit score, and on-time payments can drastically help. The more you can pay each month, the better.
- Lower your credit usage: If you have credit cards, try to use them as little as possible and work on paying them off in full every month. The amount you owe is also a big determining factor in your credit score.
- Become an authorized user: If you don’t have much credit at all, you might take the time to build your credit. See if you can become an authorized user on a credit card account. You don’t need to use the card to boost your score; you simply reap the benefits of their great score.
Even if you don’t have the option of a cosigner right now, you can build your score so you can eventually qualify for a loan and a better interest rate by yourself.
Jamie Young contributed to the reporting for this article.