What is a Personal Loan With a Cosigner?

Key insights:

• A cosigner has legal responsibility for a loan if the primary borrower can’t make payments
• Cosigners can help borrowers qualify for loans or secure lower interest rates
• Alternatives to getting a cosigner include applying for certain government loans (depending on the type of loan needed), or taking time to build credit before applying for a personal loan

A cosigner agrees to be legally responsible for a debt if the primary borrower can’t repay a loan. Having a cosigner can help a borrower qualify for a loan they wouldn’t otherwise be approved for or secure a better interest rate.

Why would someone need a cosigner?

There are several reasons someone may consider using a cosigner for a personal loan.

To qualify

A borrower may not qualify for a loan on their own. They might be building credit for the first time or rebuilding their credit after financial challenges. In these cases, applying for a personal loan with a cosigner may help to strengthen the application because the lender evaluates both applicants’ financial profiles.

To secure better terms

A cosigner with strong credit may help the borrower qualify for a lower interest rate. Some cosigner personal loans may offer more favorable terms when the cosigner’s credit and income reduce the lender’s risk.

How does a personal loan with a cosigner work?

Cosigners can be added to several types of loans, including student loans, auto loans and personal loans. While processes vary by lender, cosigner personal loans typically work in a similar way. (Note that Citi does not offer the option to add a cosigner to a personal loan.)

When using a cosigner for a personal loan, both the primary borrower and the cosigner provide financial information on the application. This may include income details and identity verification documents. The lender generally performs a hard credit inquiry on both applicants.

The primary borrower receives the loan funds. The cosigner does not receive any loan proceeds and does not co-own anything purchased with the loan. However, the cosigner is legally responsible for repayment if the primary borrower cannot make payments.

Cosigner vs. co-borrower

Cosigners and co-borrowers both share responsibility for repayment, but their roles differ.

With a personal loan with a cosigner, the cosigner agrees to repay the debt only if the borrower cannot. The cosigner does not have access to the loan funds or ownership of assets purchased.

A co-borrower, by contrast, shares equal responsibility for the loan from the start. A co-borrower has access to the loan funds and shares ownership of any asset purchased.

Missed payments on cosigner personal loans can negatively impact both parties’ credit profiles.

Pros and cons of being a cosigner

Before agreeing to a personal loan with a cosigner, it’s important to understand both the potential pros and cons.

Pros

• Cosigning may help someone qualify for a loan they could not obtain alone
• The borrower may secure a lower interest rate
• On-time payments may help build or strengthen both parties’ credit

Cons

• The cosigner may be responsible for the full remaining balance if the borrower defaults
• The loan may increase the cosigner’s debt-to-income ratio
• Late or missed payments may damage the cosigner’s credit score
• Removing a cosigner later can be difficult

Because using a cosigner for a personal loan creates shared financial responsibility, it may also affect personal relationships if repayment issues arise.

Does being a cosigner affect your credit score?

Yes. Cosigning is a legal financial commitment.

If payments are missed, or the account becomes delinquent or goes to collections, both the borrower’s and cosigner’s credit score may be negatively affected. For this reason, some people create a repayment plan together before finalizing cosigner personal loans.

On the positive side, consistent on-time payments may help build a positive payment history. A personal loan can also contribute to credit mix, which may help to support overall credit health. 

Alternatives to using a cosigner for a personal loan

Becoming a cosigner is not the right choice for every situation. Before agreeing to a personal loan with a cosigner, consider alternatives.

The borrower may explore certain government-backed loan programs, depending on the loan type, that are designed for individuals with little or no credit history. Another option is to delay borrowing and focus on building or improving credit. Strengthening credit history and income may allow the borrower to qualify independently.

Citi offers personal loans to eligible new and existing customers who meet credit and income requirements. If you think you could benefit from a Citi Personal Loan, apply online today. Note that Citi does not offer the option to add a cosigner to a personal loan.

This article is for educational purposes. It is not intended to provide legal, investment, or financial advice and is not a substitute for professional advice. It does not indicate the availability of any Citi product or service. For advice about your specific circumstances, you should consult a qualified professional.