Having someone sign a loan application with you can mean one of several different arrangements. Among these, two of the most common and easily confused are cosigner and co-borrower. Although they sound similar, each comes with a different level of responsibility and privilege.
- Cosigner: This person essentially vouches, and acts as a guarantor, for the primary borrower. In the event that the primary can’t make the loan repayments, the cosigner is liable for paying them and any fees associated with them. However, a cosigner doesn’t receive any of the loan principal or statements (usually), nor are they involved with regular payments.
- Co-borrower: Also commonly known as a co-applicant, this person is on more of an equal footing with the primary borrower. They have actual access to and use of the loan funds, as well as the obligation to make repayments. As a result, their credit history and financial profile are often more closely scrutinized by the lender, and the whole process may take longer. If you’re approved, the lender extends what is called a joint loan.
Do You Need a Cosigner for a Personal Loan?
The point of a cosigner is to strengthen your financial profile in the eyes of a potential lender, making you look like a sounder applicant and less of a risk. Consider using a cosigner if:
- You have poor or no credit: A shaky credit history can turn many lenders off. A cosigner with a stronger credit report can get you from denied to approved.
- You want to lower your interest rate: If you’ve qualified for a personal loan on your own but the APR is too high for your budget, you may want to apply again with a cosigner whose score is higher than yours. The lender could offer a loan with more favorable terms.
- You want a bigger loan: Lenders often loosen the purse strings if you’re backed by a cosigner with solid credit and a good income.
- You need the money fast: It doesn’t mean approval is a sure thing, or even always expedite matters, but having a cosigner could avoid your application needing additional review or documentation.
- You have the option: Not everyone has access to a person with a great credit score who is willing to cosign a loan for you. If you have this person, you should use them if you need to https://installmentloansgroup.com/installment-loans-la/.
Not every personal loan lender accepts cosigners, co-applicants, or joint borrowers. Among those who do, terms can vary greatly, so be sure to shop around. Different lenders service different needs-from those seeking to borrow just a small amount to those who like lots of perks with their loan.
If you need to borrow money with the help of a cosigner, look for lenders who specify that they accept them. If possible, see if you qualify for a personal loan with a cosigner before you enlist one. And be sure to understand the status of your seconder that the lender requires: just a backup cosigner or a full-fledged co-borrower.
Bear in mind, though, that enlisting someone to sign for a loan with you is a big responsibility-not just for your potential backer, but for you as well. If you can’t make payments on time, your credit score could plummet-and so could theirs.
How We Chose the Best Personal Loans With a Cosigner
Investopedia is dedicated to providing consumers with unbiased, comprehensive reviews of personal loan lenders for all borrowing needs. We collected over 25 data points across more than 50 lenders including interest rates, fees, loan amounts, and repayment terms to ensure that our content helps users make the right borrowing decisions for their needs.