If you do not have a strong credit history, showing lenders that you will make timely payments can be challenging. A co-signer could give lenders the confidence they need to lend to you.

How Does Co-Signing Work?

A co-signer is a person that agrees to sign a loan with you. The co-signer is responsible for the loan’s repayment, just like you are. The lender will use that person’s information to determine if they should authorize the loan. That includes your credit and employment data and the co-signer’s information.

If a person co-signs a loan for you, they are stating they fully understand they are legally responsible for the repayment of the loan and any fees if you cannot make payment for any reason.

This is not the same as a joint account in which both parties are equally responsible for the loan. With a joint account, both borrowers have equal access to the loan. However, a co-signer cannot access the loan funds and is not considered an equal loan owner.

What is a Co-Signor?

A co-signer is a person who agrees to take on responsibility for the repayment of a loan on behalf of another person. As noted, they do not gain access to the funds from the loan but gain the legal responsibility to pay back those funds. The co-signer could be a friend, family member, or another party.

When you ask someone to co-sign a loan, they must also be willing to apply for the loan along with you. This involves having their credit checked and answering any questions the lender may have. Co-signing can apply to different types of loans, including credit cards, small personal loans, and secured loans like car or home loans.

Benefits

There are benefits to having a co-signer.

• If you do not qualify for a loan on your own, but someone is willing to co-sign for you, that could mean you will qualify. Remember that the co-signer’s credit has to meet the terms and conditions of the lender, and they still have the right to deny the loan if they do not see that you have the financial ability to repay the debt.
• A co-signer may help you qualify for a lower interest rate on a loan. Even if you are eligible to borrow the money on your own, adding a co-signer could help lower the interest rate the lender charges to you.
• With a co-signer, you can prove to lenders that you are a reasonable risk so long as you consistently make timely payments. This could help to build your credit score, then, over the long term.

Drawbacks

There are a few notable concerns here:

• Co-signers must be willing to take on the risk associated with the loan. If you have a terrible history of using credit, they may not be willing to do so.
• Co-signers take on a lot of risks. If you plan to co-sign for someone else, recognize that you could legally be responsible for repaying the entire debt plus fees if the other party does not make payment on time.

Tips for Getting a Co-Signor

It is up to you to find a co-signer for a loan. This can be a tricky situation for some people.

• Turn to people you trust first. This could be close family members who may be most likely to work with you.
• If you ask friends or family, be sure that you provide them with information about why you are confident you can make payments on time. Show them you have the means to repay the debt.
• Realize that nonpayment or making late payments on these loans could impact your relationship with that person. For that reason, you should prioritize making these payments.

Alternatives to Co-Signing

Some other options could help you to obtain a loan if you cannot get a co-signer:

• Turn to a family member or friend to ask for a loan instead. This would allow you to secure the funds you need to purchase the item without the expense of the loan.
• Find out if the lender will use the collateral of other forms, like a deposit on the loan or a valuable asset. This could help you avoid the need for a loan with a co-signer.

Be sure you work to build your credit score over time by making on-time payments. That way, you may not have to use a co-signer the next time you need to borrow funds.