Acquiring a Personal Loan With a Co-Signer: Benefits and Risks

Written By
Julija A.
July 08,2023

When struggling to acquire a personal loan on your own, adding a co-signer can make the difference between success and failure. This is because the co-signer vouches for your creditworthiness and reliability, increasing the chances that your loan will be approved.

In this article, we will discuss the benefits and risks of acquiring a personal loan with a co-signer. We will also talk about the alternatives and provide tips on making the process as smooth as possible.

What is a Co-Signer?

A co-signer on a personal loan is someone who shares the financial responsibility for repaying the loan. Typically, co-signers are close family members or friends who have a good credit history and can make regular loan payments on behalf of the borrower. 

In addition to sharing responsibility for repaying the loan, co-signers are often responsible for making missed payments and dealing with any collections or legal actions resulting from non-payment. 

Because of this additional level of risk, it is important that borrowers thoroughly consider their options before requesting a co-signer. 

However, when used responsibly, personal loans with a co-signer can be an effective way to borrow money and build credit while avoiding other high-cost options like payday loans or cash advances.

Advantages of Co-Signing a Loan

Having a co-signer can be very beneficial for obtaining a loan.

A co-signer is someone who puts their signature on the loan agreement along with the primary borrower, essentially agreeing to take responsibility for the debt if the borrower defaults or falls behind on monthly payments. There are several benefits of co-signing a loan. 

Better Qualifications

One of the primary advantages is that it can help borrowers qualify for a loan they might not have otherwise been able to get on their own. The co-signer's good credit history and income are factored into the equation, giving the lender more confidence to approve the loan.

Lower Interest Rates

Another advantage of co-signing a loan is that it can help the borrower access lower interest rates. Lenders often see co-signers as an added layer of protection against default, leading to lower interest rates for the borrower. 

Helps Build Credit History

Lastly, getting a personal loan with a co-signer can help the borrower build their credit history. Since the monthly payments made towards the loan will be reported to the credit bureaus, this can help establish a positive payment history. 

Having a co-signer may be especially beneficial to those who have struggled with getting good credit in the past or need help getting approved for a loan in the first place. 

Overall, co-signing offers many benefits for borrowers and lenders alike, making it an increasingly popular option in today's lending landscape.

Risks of Co-Signing a Loan

When you apply for a personal loan with a co-signer, you take responsibility for the debt if the primary borrower defaults. 

This means that the lender can come after you for the total amount of the loan and any additional fees and interest that accrue. In addition, your credit score will be adversely affected if the primary borrower misses payments, making it more difficult and expensive to borrow money in the future. 

As a result, co-signing a loan is a serious decision that should not be made lightly. Before agreeing to co-sign, make sure that you are comfortable with the risks and confident in the borrower's ability to repay the debt. Otherwise, you could find yourself facing financial problems down the road.

Another thing you should consider when it comes to loans with a co-signer is that you may not be able to get out of the agreement later on. 

In most cases, co-signers are required to remain on the loan until it is fully repaid. This means that if the primary borrower decides to sell the property or refinance the loan, that will not free you of your obligations.

Also, remember that co-signing a loan will tie your finances with the borrower, which could have several implications. 

For example, if the borrower files for bankruptcy, you may be required to repay the debt yourself. Or, if the borrower dies, the debt may become your responsibility. 

Before taking a personal loan with a co-signer, be sure to understand all of the risks involved so that you can make an informed decision.

Alternatives to Co-Signing a Loan

If you're trying to help a friend or family member get a loan, you may be considering becoming a co-signer. However, co-signing comes with several risks, including the potential for damage to your credit score if the borrower defaults. 

Luckily, there are a few alternative options to co-signing, though most are not as good for the primary loan borrower.

Rebuilding Credit History

One of the alternatives to consider before you get a personal loan with a co-signer is to rebuild your credit history. 

There are a few ways to rebuild your credit, but the most common method is to get a secured credit card. With it, you put down a deposit that acts as your credit limit. 

Then, you use the card like any other credit card, making sure to make your monthly payments on time and in full.  After a period of responsible use, your credit score should start improving. 

This option takes time and discipline, but it can be a great way to help you get back on track financially. Plus, it won't put someone else’s finances at risk. That said, this is a poor option if you need a favorable loan right now.

Using Loan Sharks

Another alternative to taking an online personal loan with a co-signer is looking into loan sharks. These are private lenders who often charge high interest rates and fees. 

Although a generally risky and unfavorable option, it’s sometimes the only option that those with bad credit or no credit history have. 

If you decide to go this route, do your research and be wary of any lender who seems too good to be true.

Also, make sure you understand the loan terms before signing anything. Loan sharks often have unfair or predatory terms that can trap borrowers in a cycle of debt. 

Providing a Collateral

Another option is to provide collateral for the loan instead of taking out an unsecured personal loan with a co-signer. This could mean putting up your home or car as security against the loan, which can be a good option if you have equity in those assets. 

However, it's important to remember that you could lose your home or car if you default on the loan. Therefore you should only consider this option if you're comfortable with that risk.

Final Thoughts

Co-signing a loan can be a great way to help a friend or family member get approved for financing. However, although it comes with several benefits for them, it is vital to understand the risks involved before agreeing to co-sign a personal loan. 

Be sure to understand the loan terms fully before signing anything. Examine all of your options and alternatives, such as providing collateral, before deciding.


Will my credit score go up if I have a co-signer?


If you have a co-signer on a loan, your credit score will not automatically go up. However, if you make all of your monthly payments on time, it could improve your credit score over time. 

Also, keep in mind that if the borrower defaults on the loan, the co-signer's credit score could be adversely affected, too.

Is co-signing a hard inquiry?


Co-signing a personal loan is not a hard inquiry. Hard inquiries can only be made by lenders when you apply for credit. Although this is the case,  co-signing a loan can still impact your credit score. 

If you don't make your monthly payments on time, it will appear on your credit report as delinquency, which could lower your credit score.

What credit score does a co-signer need for a personal loan?


There is no set credit score that a co-signer needs to have to qualify for a personal loan. However, the higher their credit score, the better the chances of getting the loan. 

An excellent credit score indicates that the co-signer is a low-risk borrower, drastically increasing the primary borrower’s chances of loan approval.

What is needed to co-sign a loan?


To co-sign a personal loan, the co-signer and the borrower must first meet the lender's eligibility requirements. Co-signers must usually be at least 18 years old and have good credit. 

In addition, they must be willing to provide a guarantee for the loan, which means that they are legally responsible for repaying the debt if the borrower fails to do so. The co-signer and 0borrower will also need to complete a loan application and sign the loan agreement. 

Once these steps have been completed, the co-signer's name will be added to the borrower's account, and they will become jointly liable for repaying the debt.

Can you get a loan with bad credit if you have a co-signer?


If you have poor credit, you may still be able to get a personal loan with a co-signer. A co-signer with good credit can help offset your bad credit and improve your chances of getting approved for a loan. 

However, even with a co-signer, there's no guarantee that you'll be approved for a loan. Personal loan lenders will still consider your financial situation and credit history when making a decision.

About author

Albert Einstein is said to have identified compound interest as mankind’s greatest invention. That story’s probably apocryphal, but it conveys a deep truth about the power of fiscal policy to change the world along with our daily lives. Civilization became possible only when Sumerians of the Bronze Age invented money. Today, economic issues influence every aspect of daily life. My job at Fortunly is an opportunity to analyze government policies and banking practices, sharing the results of my research in articles that can help you make better, smarter decisions for yourself and your family.

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