Personal Loan with Cosigner

What is a Personal Loan with a Cosigner?

A personal loan with a cosigner is a loan where someone borrows money with the help of another person—the cosigner. This person agrees to repay the loan if the primary borrower cannot. This type of loan can be a lifeline for those with a bad credit history, in order to secure a loan on their own.

Understanding a personal loan with a cosigner is crucial in today’s financial landscape. With consumer credit, including personal loans, increasing at an annual rate of 12.3% in the first quarter of 2023¹, it’s clear that more and more people are turning to these financial tools. 

Whether you’re the borrower or the cosigner, knowing the ins and outs of these loans can help you make the best-informed decisions and avoid potential pitfalls. Are cosigned loans the best personal loans for you? Find out here! 

Cosigner vs. Co-borrower: What’s the Difference?

A cosigner and a co-borrower have different responsibilities, rights, and purposes. A cosigner does not benefit from a loan but is liable if the primary borrower cannot repay. In contrast, a co-borrower shares equal responsibility and benefits from the loan. For example, a co-borrower has equal ownership of any purchased asset, such as a house or a car. 

When Does A Cosigner Loan Make Sense?

It makes sense to use a cosigner if you find it difficult to get approved for traditional loans, such as personal loans or debt consolidation loans. Using a cosigner is generally beneficial for the following reasons:

• Have High Debt-To-Income Ratio: Too much debt signifies financial instability to a lender. But using a cosigner with good credit reduces the lending risk.  
• Need a Larger Loan: A cosigner may help you qualify for more loan funds.  
• Have No Or Bad Credit History: Bad or invisible credit scores can make it difficult to get funding. Applying with a cosigner who has a good credit score may help you bypass the minimum credit score requirement. 
• Are Self-Employed: Using a cosigner may help strengthen your application if the lender doesn’t accept self-employment income. 
• Need To Build Credit: Qualifying for a loan with a cosigner may help you build credit over time if you make timely loan payments.
• Need Better Rates: Borrowers with bad credit scores generally get higher rates. Applying with a cosigner makes sense if you want to get lower APRs. 

How Do Personal Loans with a Cosigner Work?

Applying for an online personal loan with a cosigner on your loan application may result in a faster approval process, better terms, and lower rates. Cosigners have shared responsibility for the loan. If a lender gets a loan application with a cosigner, they are more likely to approve it since the financial risk is lower.

But if the primary borrower experiences financial difficulties, then the cosigner is liable for the remaining loan balance since they have shared liability. Failure to meet the repayment terms of a personal loan will result in negative consequences for both parties. As you can see, the cosigned loan process can be beneficial for the primary borrower and risky for the cosigner. 

Who Can Be A Cosigner?

Anyone can qualify as a cosigner if they meet the cosigner qualifications set by the lender. Trusted cosigners can be family members, friends, or spouses. Eligible cosigners are financially responsible for the loan if the primary borrower fails to keep up with payments. For this reason, a cosigner must have sufficient income and a good or excellent credit history to qualify. 

Steps to Apply for a Personal Loan with a Cosigner

These are the general steps required to apply for a personal loan with a cosigner:

1. Application: The application process requires personal information (name, date of birth, SSN, etc.) and documents (paystubs, government-issued ID, etc.) from all parties. 
2. Approval: Most personal loan lenders provide approval decisions in as little as one business day. Once approved, you will receive a personal loan contract with your loan terms. Ensure you read the terms and conditions carefully before signing. 
3. Funding: After you and your cosigner sign the loan agreement, you can get loan funds sent to your checking account. If you apply in person at a store location, you may be able to get a check. 

At CreditNinja, we work with all types of credit scores, so you may not need a cosigner to qualify for an online personal loan. Approved borrowers may get their loan funds the same day they apply!* We send funds through direct deposit to any bank or credit union, such as the Navy Federal Credit Union or First Tech Federal Credit Union.  

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Benefits and Drawbacks of Personal Loans with a Cosigner

There are cosigner advantages and disadvantages to consider before you start the cosigner loan process. Consider whether the pros of getting a personal loan with a cosigner outweigh the potential cons.

Benefits 

These are the loan benefits of using a cosigner:

• Better Approval Odds: If you use a cosigner, you may have a better chance of getting approved for a personal loan with bad credit. The lender’s default risk is lower if a cosigner is attached to the loan. 
• More Money: You may qualify for a higher loan amount with a cosigner loan than a traditional personal loan. 
• Lower Interest Rates: You may get lower loan rates by applying with someone who has a higher credit than yours. 
• Credit Score Improvement: An improved credit score is one of the best cosigner advantages. A history of timely payments can have a positive credit impact on both parties. 

Drawbacks and Risks

Here are some drawbacks of cosigned loans:

• Risk to Cosigner’s Credit: Falling behind on payments can negatively affect the cosigner’s credit score as well as your own.
• Financial Liability: Cosigners have shared responsibility for the loan. The cosigner is liable for the remaining loan balance if the primary borrower cannot repay. 
• Limited Benefit for Cosigner: The risk of financial liability is very high for the cosigner. And unlike a co-borrower, a cosigner does not benefit or gain assets from the loan.
• Limited Borrowing Power: Taking out a loan may limit your borrowing power in the future. Too much outstanding debt may make you ineligible for more loans.  
• Damaged Relationship: Financial issues during the repayment period can damage your relationship with the cosigner. 

How To Apply for a CreditNinja Loan

Borrowers can apply for a CreditNinja personal loan in 3 easy steps. The approval process for CreditNinja is so quick that applicants may get same day approval decisions.* If approved, your money may get directly deposited the same day to your checking or credit union account.* 

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