Getting a loan isn’t that hard when things go well. All you need is a great credit score and a credit history that shows how responsible you are. If you’ve got both, you’ll get a good interest rate on a personal loan. If you don’t, though, you’ll need help.
This is where a co-signer comes in. Co-signers are very common on loans for cars and school, and somewhat less common for personal loans. There are, however, some lenders who will allow you to use a co-signer for your personal loans.
So, why use a co-signer? Mostly, because this person is able to use their good credit and credit history to help you to get a loan that has a decent interest rate. These are people who present a more stable investment for the lender, as they agree to pay the full amount of the loan if you happen to default. They are, generally speaking, a method of securing a rather dangerous loan.
Using a co-signer usually isn’t a first option, though. If you miss a payment, it won’t just be your credit score that takes a hit. And as with all matters monetary, you can end up hurting your relationship with your co-signer if you run into any problems with repayment. As a rule, it’s a good idea to avoid co-signing for a friend or family member if you can’t afford to pay the loan and a good idea to avoid asking for a co-signer if you can’t count on making every payment on your own.
The Difference Between a Co-Signer and Co-Borrower
People might use the terms co-signer and co-borrower interchangeably, but they’re actually very different. While both can help you secure a loan, it’s a good idea to figure out which you need. Failure to do so can cause problems in the future.
A co-signer is just someone who is responsible for paying if you default on the loan. A co-borrower is a joint borrower, and thus someone who will also get access to the money. The former is someone who is going out on a limb to help you; the latter is someone who also benefits when you borrow money.
Getting Co-Signed Loans from Banks and Credit Unions
Unfortunately, you probably aren’t going to get a personal loan from a major bank. Only two of the major banks still offer personal loans, and you need to be an existing customer to get one of these loans. If you are a customer, you can visit Citibank or Wells Fargo to fill out the relevant paperwork.
Credit unions are usually a bit easier to work with, though. These local credit unions usually have lower rates and thus will cost you less over time. Generally speaking, most credit unions will allow for a co-signer if one is needed for a loan.
Co-Signed Loans from Online Lenders
There are only a few online lenders that will let you use a co-signer, and most them only let you do so to reduce interest rates. You might have a chance to get a co-signer with Freedom Plus, for example, but you’ll need to have good credit yourself. Light Stream will offer you a chance to get a loan with a co-signer if one of the two of you has an excellent credit score. You may even be lucky enough to stumble upon one of the few other lenders that allows for co-signers, especially if you confine your search to lenders that work with those who have poor credit.
How Co-Signers Can Help You
Generally speaking, a co-signer is going to help you get a loan or interest rate for which you don’t usually qualify. They have a higher credit score, so they represent less of a risk for the lender. A good co-signer is going to show the bank that someone will be able to pay the money back and give you a chance to get the money that you need. A co-signer is not, however, going to get rid of all of your faults. The bank is going to look at your combined credit scores and combined incomes to make its final decision on whether or not to give you a loan.
Is a Co-Signer the Right Option?
Whether a co-signer is the right option for you is a personal decision. From a purely financial standpoint, a co-signer will do nothing but help you. From a personal standpoint, though, you might want to think before you make this kind of request. If you run into financial problems, you’ll be putting another person’s financial future at risk. If you are willing to make your payment and know you won’t hurt a friend or family member, a good co-signer can help. Just don’t borrow money you can’t afford to pay back – that’s how many friendships end.