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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.
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:
- A low credit score (any score under 650 to 630)
- Little to no credit history
- Low or unpredictable income
- Short employment history
- High debt-to-income ratio
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 Cosigner
Because 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 Cosigner
Most 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.
|Lender||Need to Be a Member?||Current APRs|
|Citizens Bank||No||6.78% - 20.88% with AutoPay|
|Wells Fargo||Yes||7.49% - 24.49%|
|Navy Federal Credit Union||Yes||8.19% - 18.00%|
|PNC Bank||No||4.99% - 24.49% with AutoPay|
|TD Bank||No||6.99% - 18.99% with AutoPay|
|Citibank||Yes||7.99% - 17.99% with discounts (rate may be higher)|
|U.S. Bank||Yes||7.49% -17.99%|
|Backed||N/A (online lender)||2.90% - 15.99%|
|LightStream||N/A (online lender)||3.34% - 16.99% with AutoPay (rates vary by loan purpose)|
|LendingClub||N/A (online lender)||6.95% - 35.89%|
|OneMain Financial||N/A (online lender)||16.05% - 35.99%|
|Avant||N/A (online lender)||9.95% - 35.99%|
Alternatives to Cosigned Personal Loans
If 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 Loan
Many 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.
While 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.