Bad credit is a downside to getting a personal loan. Your low credit score creates doubts among lenders about repayment. So, adding a cosigner to the loan application can help your application.
Veteran credit supervisors answer, “How to get approved for a personal loan with bad credit but good cosigner?” You can secure the loan despite having a bad credit score if an adult US citizen agrees to share responsibility for your loan. However, there are some requirements.
Let’s check out the details.
Critical Analysis: The Concept of Adding a Cosigner
A cosigner is the guarantor for your personal loan responsibilities. He lets you use his personal and financial details to strengthen your loan application. Thus, the cosigner becomes equally responsible for repaying the borrowed amount. Also, the lender can legally act against both of you in case of default.
Adding a cosigner to a personal loan application is highly effective if you have a low credit score. The cosigner increases the chance of getting the personal loan approval and helps you get a lower interest rate & long term. Interestingly, the cosigner shares only the responsibility of loan payoff and no share of the loan amount.
Requirements of an Ideal Cosigner
If you have a poor credit score, we suggest you find a cosigner with below qualifications:
Good Credit Score
Choose a person as a cosigner whose credit score is above fair. It means he or she must have a 580 or above on the FICO Credit Score scale. The cosigner will fare even better with a credit score of above 740, which is considered very good. This good or very good credit score will increase your chance of getting the loan approved.
Good Credit History
The cosigner must have a good credit history and credit score. Before adding a cosigner, carefully check the person’s credit history. If you find that he or she has a record of numerous late payments of credit card bills or monthly installments, do not add that person.
Also, avoid adding a cosigner who has a record of loan defaulting.
Good Income
Before selecting any cosigner, you must request him or her for the income statement. If the cosigner has an average annual income of $54,000, you should avoid adding him or her. Essentially, this income bracket is considered a low-income group.
Even though the chosen cosigner has a good credit score and history, the low-income status will negatively impact your loan application. So you must check your chosen cosigner’s other source of income as well, like any side hustle, investment, rental properties, etc. It will increase the application’s overall strength.
How to Apply for a Personal Loan with Cosigner
As you have decided to add a cosigner to the loan application due to your bad credit, we suggest you follow the below process:
Step 1: Collect all your financial documents and do a self-analysis to evaluate the possibility of getting the loan on your own.
Step 2: Upon finding an inability to get approval, consult with several lenders to determine whether they accept a cosigner or not. Several banks and financial institutions do not accept a cosigner’s inclusion. Now, shortlist the lenders.
Step 3: Search for the cosigner and collect the select person’s financial documents.
Step 4: Compare the shortlisted lenders in terms of their offer, maximum allocation, loan terms, etc.
Step 5: Apply to multiple lenders to get a pre-approval.
Step 6: Officially apply to get offers from multiple lenders. Compare all the offers’ terms and conditions.
Step 7: Accept the most suitable offer. You and the cosigner must sign the loan agreement.
Step 8: You receive the amount.
Cons of Adding a Cosigner to Your Personal Loan
In most cases, we see that a cosigner is a friend or family. By adding such a person as a cosigner, you risk your relationship with that person. As the cosigner takes responsibility for the loan payoff, it will become an illogical burden for that person if you fail to pay the loan back. The result is simple: degraded personal relationships and orientation of complex legal issues.
There are some other disadvantages that are also present if you add a cosigner to your personal loan application.
- The lender will run a hard credit check on both of you. In this case, both of your credit scores will go down temporarily.
- Paying late will negatively impact the cosigner’s credit score, though there is no fault from that person’s end.
Therefore, how to get approved for a personal loan with bad credit but good cosigner? We hope now you have a clear understanding. Finally, if you add a cosigner, try your best not to miss any monthly payment and pay back the amount within the given terms. Otherwise, a helpful person will suffer for your bad deed without a good reason.