If you don’t qualify for a personal loan due to your credit score, a co-signer might be able to help you gain approval. In general, you’re more likely to find a co-signer by asking a family member or close friend. It's also smart to consider applying for one of the best personal loans with a co-signer to increase your chances of approval. Here’s what you need to know about using a co-signer to qualify for a personal loan.

What Is a Co-Signer?

A co-signer is someone who agrees to take responsibility for your loan if you default. In general, a co-signer is only required to make payments on the loan if you fail to do so.

This is in contrast to a co-borrower, who is equally responsible for making on-time payments. However, a co-borrower also has an equal claim to ownership of any asset purchased with the loan. For example, on one hand, as a co-signer on a car loan, you will be on the hook for payments but can’t repossess the car. On the other hand, if you’re a co-borrower on the car loan, you have an equal claim to the car and might be listed on the title.

When Do You Need a Co-Signer?

In general, you might need a co-signer to help you qualify for a personal loan that you might not otherwise be able to get. There are two main reasons why you might not be able to get approval for a personal loan:

• Credit: If you have a poor credit score, you might not qualify for the best rate on a personal loan—or you might not get approved at all. Someone with good credit can lend their reputation to you so you can get the loan. Similarly, a young person with no credit history might find it difficult to get approved. A co-signer can help a young person get the loan and then establish their own credit through on-time payments.
• Income: Even with fair to good credit, you might have a hard time getting approved for a personal loan if the lender doesn’t think you have adequate income to make payments. In this case, a co-signer with a higher income might help you qualify for the loan.

How to Find a Co-Signer

For the most part, just about anyone can be a co-signer on a personal loan. However, in many cases, finding a co-signer is a matter of trust. As a result, you’re likely to have better success when you ask a friend or family member to co-sign. When looking for a co-signer, it’s important to show that you’re unlikely to default. Because the co-signer is on the hook, you generally need to be able to show that you’ll be responsible for the loan and likely to pay it off. In addition to using friends or family, there are also services that offer to match you with a co-signer. In this case, you sign up to have someone act as your co-signer. However, you normally need to pay a fee for this service. The fee depends on the size of the loan, your credit situation, and other factors.

What to Look for in a Co-Signer

Your co-signer should be in a good financial position, with relatively low levels of debt and an income that can handle the payments. When considering an application with a co-signer, a lender usually treats the co-signer as if they are the primary borrower. Their ability to pay and their current debt-to-income (DTI) ratio will be considered. It’s important to note that the loan payment from a co-signed loan might be counted as part of a co-signer’s DTI ratio and can impact their ability to get loans in the future.

Finally, a co-signer needs to have good to excellent credit. You’re unlikely to get approved with a co-signer if they don’t have good credit.

Alternatives to a Co-Signer

In some cases, you might not be able to secure a co-signer for your personal loan. Because a co-signer can be impacted as if the debt is theirs (even when it isn’t), it might be difficult to convince someone to act as your backup. In that case, you might need to consider other options.

Bad Credit Personal Loan

Several personal lenders are available; some specialize in providing loans to those with lower credit scores. It’s possible to get a personal loan with bad credit, but you might have to pay a much higher interest rate and fees. You might also be able to find a personal loan that doesn’t require a credit check.

If you can’t wait to improve your credit score to apply for a loan, one of these loans might be able to help you work toward your goals. However, consider making a plan to pay off the debt sooner if you can, as a way to reduce the total cost related to high interest charges—but only do so if you’re certain that your new loan won’t come with any prepayment penalties.

Secured Loan

If you can’t find a co-signer and you’re unable to get a personal loan another way, you might be able to get a secured personal loan. Some personal lenders accept something valuable as collateral, such as a car. However, if you’re unable to make payments, the lender can then decide to repossess your vehicle. Securing your debt with an item of value might allow you to get the loan, but there are risks if you’re unable to make payments later.

Ask for Help

In some cases, friends or family members might not be willing to co-sign, but they might agree to lend you the money directly. If this is the case, you should sign a promissory note with your loved one and come up with an agreement on an interest rate and timeline. Realize, though, that if you don’t repay the loan, it could place a strain on your relationship.

You could also ask for direct help paying for an emergency expense or funding your basic living expenses if that’s why you’re looking for a loan. Some friends and family members might feel more comfortable directly paying your bills and giving the money as a gift than risking their own credit by co-signing on a personal loan.

Finally, find out if there are local organizations in your area that might be able to help you. There are agencies that can help you with utility bills, food pantries that can provide you with groceries, and other programs that might be able to help you meet your needs so that you don’t have to get a loan.

How Do People Use Personal Loans?

daftarlapak303.commissioned a national survey of 962 U.S. adults between Aug. 14, 2023, to Sept. 15, 2023, who had taken out a personal loan to learn how they used their loan proceeds and how they might use future personal loans. Debt consolidation was the most common reason people borrowed money, followed by home improvement and other large expenditures.

The Bottom Line

If you don’t qualify for a personal loan, some lenders allow you to use a co-signer to get approved. However, if you have a co-signer, they’re on the hook for payments if you default.

Before looking for a co-signer, see what other options you have, and make sure you have a plan to pay down your debt to maintain a good relationship with your co-signer.