How to Get a Bad Credit Personal Loan with a Cosigner

Do you have bad credit? If so, you might know how challenging it can be to get a personal loan. Your credit report might show that you’ve had too many late payments or gone over your credit limit. It might even show that the bank has foreclosed on your house or you’ve declared bankruptcy. Anyone can find themselves in these circumstances. But there are ways to overcome them. 

What should you do if you need to borrow money but your credit is too bad to get approved for a personal loan? You could ask your best friend, your mom, or your closest coworker for a loan. But they might not have the extra cash to lend you. If their credit is good, though, they might be able to help you by cosigning a loan for you. 

How Getting a Personal Loan with Bad Credit and a Cosigner Works

bad credit personal loans

First, look for companies that accept cosigners on personal loans for customers with poor credit. What does a cosigner do? They guarantee that they’ll repay the loan if you don’t. It’s a legal obligation they should not agree to without understanding how it works.

2. You’ll need to find someone with better credit than you who is willing to cosign your loan. Your cosigner can learn their credit score for free through various websites. They might also be able to get a free score from their credit card issuer. Before applying for a personal loan, you want to know if you have a shot at getting approved.

A good rule of thumb is that your cosigner’s credit score should be at least 600 to 650. But that score doesn’t guarantee approval. Each lender decides what credit scores and incomes its borrowers must-have. Debt-to-income ratio is also important: if you and your cosigner already have lots of debt compared to your income, you might not be allowed to take on a personal loan.

Some lenders offer a quick, easy, and free way to see if you might qualify for a loan. They’ll ask for your identifying information and the facts about the loan you want. Then they’ll do a soft credit inquiry. This type of credit check doesn’t affect your credit score (a hard inquiry does). But it gives you an idea of whether you’ll qualify and what your interest rate might be.

3. You’ll want to identify the lender who is offering the best personal loan terms for your situation. What size loan can you get? What interest rate can you expect? How much time will you have to repay the loan? How much is the loan origination fee?

Finally, you’ll apply for the loan with your cosigner. You’ll both provide your Social Security numbers, income information, and the usual personal details. 

What to Know About Being a Cosigner

Cosigners are responsible for any part of the loan the borrower doesn’t repay. In other words, you both have equal responsibility for repaying the loan. Also, the borrower’s loan payments will affect the cosigner’s credit score. 

A cosigner should expect that the borrower will make every loan payment in full and on time. Does the borrower have enough income to make the loan payments? In a worst-case scenario, the borrower could fall behind and rack up late fees. The cosigner could get stuck paying those fees and get a lower credit score, too.

What is the difference between asking someone to be a cosigner versus a co-borrower? A cosigner is a backstop in case you don’t pay. They don’t receive any loan proceeds. And when things go well, they don’t make any loan payments. But if the borrower can’t pay, the cosigner must step in.

A co-borrower expects to use part of the money from the loan. You might get a co-borrower if you were buying a car that you were both going to drive and both going to hold title to. A cosigner wouldn’t have those expectations. They’d only be trying to help you out. Spouses or business partners might be co-borrowers. Friends, relatives, boyfriends, girlfriends, and coworkers might be willing cosigners.

Getting a Personal Loan with Bad Credit but a Good Cosigner

Having a good cosigner can be the deciding factor in getting a personal loan with bad credit. Also, your cosigner’s credit history, credit score, and debt-to-income ratio will affect your interest rate. Some personal loan companies will give you their lowest interest rate if your cosigner has excellent credit. Your interest rate will be higher if your cosigner’s credit score is lower. 

What about fees? Some personal loans have origination fees or a similar up-front fee, such as a documentation fee or application fee. These fees increase your total cost to borrow. 

Because some lenders charge origination fees, it’s important to compare the annual percentage rate (APR) between loans. The APR will give you a better idea of their total cost than comparing interest rates. 

APR factors in the loan’s fees. This means that a loan’s APR will be higher than its interest rate if the loan has origination fees. It’s normal to see origination fees as low as 1% and as high as 8%. 

An origination fee is not a deal-breaker. A loan with no origination fee might charge a higher interest rate; a loan with an origination fee might charge a lower interest rate. The loan with the lower APR will cost you less overall.

A drawback of any origination fee is that the lender will usually subtract it from your loan. You might need to borrow more because of the origination fee — or find a lender that doesn’t charge one. For example, if you need to borrow $1,000 to fix your car and the lender charges a 6% origination fee, the lender will keep $60. You’ll only get $940. So you might need to apply for a $1,100 loan instead. 

Personal Loan Amount: How Much Can I Borrow?

The loan amount will depend on your borrower profile, including your cosigner’s profile. This profile includes your debt-to-income ratio and your credit history. 

The loan amount also depends on what the lender offers in general. But you won’t be able to borrow the maximum unless your cosigner has a large income, minimal debt, and very good credit. 

The bigger the risk, the less money the lender will want to give you and the more interest they’ll want to charge you. With a lower income, more debt, and a lower credit score, your loan amount will be lower and your interest rate will be higher. 

Monthly Payments on Personal Loans

Your personal loan’s monthly payment will depend on your loan amount, interest rate, and loan term.

Your loan’s term is the number of years or months you have to pay it back. Some lenders offer shorter or longer terms. If you want to repay your personal loan faster, look for one with no prepayment penalty. 

Here’s a simple example of how much a monthly payment could be.

Loan amount: $1,000

Interest rate: 10%

Loan term: 2 years

Origination fee: none

Monthly payment: $46

Before you sign any loan paperwork, make sure you’re comfortable with the loan payment. You need to be able to afford it every month. If you can’t, your credit score could suffer. Your cosigner’s credit score could suffer. And your cosigner could have to take over the monthly payments. If this happens, it could hurt your personal relationship with your cosigner, too. 

If you can’t make a loan payment on time, tell your cosigner before you’re late. If your cosigner pays on time, you’ll avoid hurting their credit score — and yours. In fact, making every loan payment in full and on time can improve both your own credit score and your cosigner’s.

If You Have Bad Credit, Can You Get a Personal Loan with a Cosigner?

In conclusion, yes, it is possible to get a personal loan when you have bad credit. The key is to find a willing cosigner who has better credit than you do. Lenders have different standards for the credit score a cosigner needs to have. To see where you have the best odds of getting approved, read the websites of lenders you’re considering. Use online loan comparison tools. Shop around to find the personal loan with the best terms and the lowest APR. And ask your cosigner to prequalify with your preferred lender.

Poor credit doesn’t have to prevent you from borrowing money. Not everyone who has poor credit is irresponsible, but your credit report might make it look that way. With a cosigner, you may be able to get the money you need and rebuild your bad credit. Each timely payment adds to your credit history and makes you look better. With an improved credit history, future loans may be easier to qualify for — and less expensive, too.