2 minute read
What is a Co-signer and Who Needs to Use One?
If you need to borrow money but are struggling financially or don’t have great credit, it’s difficult to qualify for personal loans — especially ones with affordable interest rates or good terms. One way to increase your approval odds is to get a co-signer.
A co-signer is a person (usually a family member or friend) who agrees to repay your loan if you default or miss payments. They don’t share in the loan funds because they aren’t listed as the primary borrower. However, their credit record is affected for better or worse by your payment history. A co-signer is different from a co-borrower
A co-signer’s stronger income and credit history can make a lender can feel more confident that the loan will be repaid in full. A co-signer is different from a co-borrower, whose name is also on the loan and who is equally responsible for all payments. For example: a parent may co-sign on a car loan for their child, while spouses may be co-borrowers on a home loan.
When to consider asking somebody to be a co-signer:
Your debt-to-income ratio is on the higher end.
Your income is not high enough to meet minimum loan requirements.
Your credit score is considered poor (below 580).
You’re young, with limited income, and lack credit history.
You are self-employed and/or don’t have a stable source of income.
If you’ve decided to ask somebody to co-sign on your loan, this person should have:
Low debt-to-income ratio
Strong, stable source of income
Consider potential co-signers carefully
Asking somebody to co-sign on a loan is no small request. It puts them at financial risk if you can’t keep up with payments, via negative impact to their credit score and repaying your debt. Therefore, it’s important to have an honest, healthy relationship with this person; they should not be pressured into helping you. You both should be able to share all of your financial details, understand the loan terms and know all the risks involved.
What you can do instead of getting a co-signer
If the lender doesn’t allow a co-signer, you can’t find a willing co-signer, or aren’t comfortable with asking somebody, you still have options. Some of these include:
Get a secured personal loan, which is backed by collateral.
Ask friends or family if they’ll lend you money, which you can repay, or get as a gift.
Check with lenders who consider people with poor credit.
See if you can work with a credit union.
Looking for a lender who will work with you to find the right loan for your needs? Come to a Lendmark branch today to discuss your options or get started online.