Get co-signed personal loans in 5 steps

If you have a credit score of 650+ and have sufficient income to cover the loan payment, you don’t need to ask someone to co-sign your loan. Most lenders will consider you creditworthy and offer you better rates.

A co-signer only becomes necessary if you need funds but have a bad credit history, no or low reliability, and a history of defaulting on loan payments. With a co-signer, you can increase your loan approval odds and lower your interest rate. Here’s a step-by-step guide to getting a co-signed personal loan.

Step 1: Find a Co-signer

A co-signer is financially responsible for paying off the debt if you, the primary borrower, can’t keep up with your loan payments. They have to be trustworthy and be able to trust you as well.

That’s why while anyone can be a co-signer, it’s more common to ask people with whom you already have a healthy relationship. Typically, the co-signers are family members, significant others, or close friends.

It’s possible that your first choice for co-signer can less likely take on the financial responsibilities comfortably. If that’s the case, don’t push it and let them off the hook gracefully. After all, co-signing isn’t a small request to make for someone.

Step 2: Assess co-signer’s eligibility

Co-signing is a big and long-term responsibility, so carefully consider who you’ll ask to be a co-signer. When asking them, be transparent with your financial situation and ensure they’ll comfortably disclose their financial situation.

Here’s a list of good qualities of a co-signer to keep in mind:

1. Good credit – A co-signer with an excellent credit score of 670 or above can increase your chances of getting approved, as well as lower interest rates.
2. Solid income – A co-signer who meets, and preferably exceeds, the required income for approval can also increase your chances of getting approved.
3. Low debt-to-income (DTI) ratio – A co-signer who doesn’t have a lot of debt or a high outstanding balance relative to their income may have a lower DTI ratio. Having a low DTI means a better credit score. The higher your co-signer’s credit score, the higher your creditworthiness.

Step 3: Look for lenders offering co-signed loans

Almost all kinds of loans can be co-signed. These include student loans, personal loans, home improvement loans, credit card agreements, auto loans, and even mortgage loans. However, not all financial institutions allow co-signing, so you better research first.

It’s important to note that co-signing some types of mortgage loans is quite complicated. Your co-signer may not get a co-signer notice since federal law doesn’t require it for real estate purchases.

However, the transaction is usually straightforward if it’s a co-signed personal loan. Most lenders can process your loan online, meaning anywhere, anytime. Besides convenience, others also offer unique features that can help you with your payments.

Take CreditNinja’s Scheduled Payments as an example. Their tool can help you make timely payments. Doing so isn’t beneficial for you. It’s also a way to prevent harming your co-signer’s credit and, potentially, your relationship with them.

Step 4: Shop around to find the best rates and terms

Applying for a consigned personal loan has its own set of hoops that you’ll have to jump through with your co-signer. Apart from the qualifications mentioned earlier, you also have to consider the following:

• Application timeline – Having a co-signer adds extra time to your loan application process since your lender has to evaluate you and your co-signer.
• Co-signer release – Opt for a lender that offers “co-signer release.” It frees your co-signer from your loan contract after some time. A history of on-time payments is usually the requirement for this. However, not all lenders offer this, so read the fine print carefully.
• Lender’s rates and terms – More importantly, shop around and compare each lender’s interest rates, terms, fees (including origination and late fees), and amounts. There’s no need to go to any lenders’ offices personally. There are many sites and online marketplaces that conveniently show you these comparisons.

Securing the lowest fees and interest rates is essential when shopping for a co-signed personal loan. Shortlist lenders that allow loan pre-qualification. Before applying, take advantage of these to check what rates and fees you may qualify for without hurting your and your co-signer’s credit score.

Step 5: Prepare to apply for the co-signed loan

Once you’ve chosen a lender that best fits your needs, check their requirements and prepare them before formally applying. Typically, they’ll require you to hand in the following documents:

• Your and your co-signer’s government-issued ID (birth certificate, driver’s license, or passport);
• Your and your co-signer’s proof of income (W-2s or pay stubs)
• Your and your co-signer’s proof of residence (your rental or mortgage loan agreement)

Note that you need to submit to a hard credit pull, so it’s in your and your co-signer’s best interest to apply to one lender at a time. Remember that having a lot of credit checks can lower your credit score. Once officially approved, you’ll have to sign your loan contract before receiving your loan funds, usually in a lump sum.

Final thoughts

Even if the people you asked can financially co-sign but find co-signing risky, respect their decision and be understanding of that. If you can’t find anyone who can be a good co-signer, consider other alternatives to a co-signer arrangement.

 

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