A co-signer is a person who helps a borrower secure a loan by agreeing to be legally responsible for repayment if the borrower defaults. Here are the pros and cons of co-signing, along with some practical alternatives.

What to Look for in a Co-Signer

You may need to get a 澳洲幸运5官方开奖结果体彩网:co-signer for a personal loan if you can't qualify on your own or if your credit history limits you to loans with poor rates and terms. That can be the case if you have a low 澳洲幸运5官方开奖结果体彩网:credit score or are new to the world of credit and haven't established enough of a record to have a score yet. The latter is often referred to as having a 澳洲幸运5官方开奖结果体彩网:thin file.

Since adding a co-signer makes you seem less of a risk to lenders, you'll want to ask someone in a stronger financial position than you are. In most cases, that is likely to be a family member or close friend.

This can mean any (or all) of the following:

Good Credit

A co-signer with "good" credit, such as a 澳洲幸运5官方开奖结果体彩网:FICO score of 670 to 739, can help you qualify for a personal loan with reasonable rates and terms. If you have a co-signer with "very good" credit (FICO scores from 740 to 799) or "exceptional" credit (FICO scores of 800+), your chances of securing a personal loan with the best possible rates and terms improve even further.

Low Debt-to-Income (DTI) Ratio

Lenders also look for loan applicants whose co-signers have a relatively low 澳洲幸运5官方开奖结果体彩网:debt-to-income (DTI) ratio. That figure compares🦩 a person's monthly debt payment obligations to their monthly gross income.

According to Discover, many lenders consider a DTI of 43% to be the threshold where 澳洲幸运5官方开奖结果体彩网:creditworthiness begins to wane. In other wor🦩ds, lenders don't like to see someone using more than 43%ღ of their income to cover their debts.

Reliable Income

A solid and reliable income is another must when it comes to a co-sign𓆏er. That suggests that the co-🅠signer could afford to pay the debt if need be.

Advantages and Risks of Using a Co-Signer

While having a co-signer can be beneficial, it also involves some risks that both parties should be aware of.

Advantages of Having a Co-Signer

• Acquire funding when you can't qualify on your own: If you need a personal loan for some purpose but wouldn't qualify for one at this point, a co-signer can be the answer.
• Qualify for better rates and terms: Even if you might otherwise qualify for a personal loan, having co-signer with a strong 澳洲幸运5官方开奖结果体彩网:credit score and a good income may get you lower 澳洲幸运5官方开奖结果体彩网:interest rates and better loan terms.
• Improve your credit score over time: Your credit score will steadily improve as you make on-time loan payments if the lender reports your payments to the credit bureaus. (If improving your credit score is one reason you're taking the loan and enlisting a co-signer, make sure the lender does report to at least one and ideally all three of the 澳洲幸运5官方开奖结果体彩网:major credit bureaus.)

Risks of Using a Co-Signer

• Your actions can impact the co-signer's credit score: Paying your bill late or 澳洲幸运5官方开奖结果体彩网:defaulting on the loan will hurt your co-signer's credit as well as your own.
• The arrangement can last for years, which may be longer than you prefer: Some loans let you 澳洲幸运5官方开奖结果体彩网:"release" a co-signer at some point in the process, but it's not always an option.
• Your relationship may become strained: If you accidentally make payments late or 澳洲幸运5官方开奖结果体彩网:repayment doesn't go as planned, the personal relationship you have with the co-signer could be damaged.

Co-Signer vs. Co-Borrower

A co-signer guarantees another person's debt but doesn't have any ownership of whatever the loan funds are used for. Ultimately, that's where a co-borrower is different.

In the case of 澳洲幸运5官方开奖结果体彩网:personal loans that allow joint a🌠pplication⭕s, the co-borrower is just as responsible for repayment as the primary borrower. However, they also have rights to the loan funds or any 澳洲幸运5官方开奖结果体彩网:collateral used to secure the loan.

Alternatives to Co-Signing

If you've been asked to co-sign a loan but are unsure whether it's a good idea, you might want to consider some other options. These alternatives offer another means of helping the primary borrower without putting your personal credit on the line.

• Offer your own loan: If you're willing and able to lend the borrower the money they need, they could pay you over time. This would ensure that your credit isn't damaged if they don't meet their responsibilities, although it would also make you responsible for collecting payments from them. If you go this route, formalize it with a written agreement so there are no misunderstandings.
• Apply for the loan on your own: You could also apply for the loan yourself and let the person you're trying to help access the money. From there, they could make payments to you, which you could then use to repay the lender.
• Offer collateral to help secure the loan: You could also supply collateral for a secured personal loan that the borrower would apply for independently. Collateral could be money in a 澳洲幸运5官方开奖结果体彩网:savings account or 澳洲幸运5官方开奖结果体彩网:certificate of deposit (CD), a 澳洲幸运5官方开奖结果体彩网:car title, or something of value.

What to Consider Before Co-Signing a Loan

Before you co-sign a personal loan for someone else, there are several important f💎act♏ors to keep in mind:

• Being a co-signer can limit your own borrowing options: As the Federal Trade Commission notes, co-signing on a loan may prevent you from being able to borrow money on your own in some scenarios. For example, it might push your debt-to-income ratio too close to the acceptable limits.
• You will have to repay the loan if the primary borrower fails to do so. If the borrower defaults on the loan, you will be legally obligated to repay it, and debt collectors may pursue you.
• Co-signing on a loan puts your personal credit at risk: You may be asked to co-sign because you have a high credit score, but this may not be the case for long if the primary borrower pays their loan bill late or not at all.

How Do People Use Personal Loans?

cnjem.commissioned 澳洲幸运5官方开奖结果体彩网:a national survey of 962 U.S. adults between Aug. 14, 2023, and Sept. 15, 2023, who had taken out a personal loan to learn how they used their loan proceeds and how they might use future 澳洲幸运5官方开奖结果体彩网:personal loans. Debt consolidation was the 澳洲幸运5官方开奖结꧂果体彩网:m⛦ost common reason people borrowed money, ဣfollowed by home improvement and other large expenditures.

The Bottom Line

Getting a personal loan with a co-signer can be tricky, mostly because you have to find someone willing to put their credit at risk to help you. That said, it can work just fine if you take borrowing seriously and always make your loan p🌠ayments on time.

澳洲幸运5官方开奖结果体彩网:Before you take out a person♛al loan with a co-signer, 🙈closely examine your monthly income and expenses to make sure you can afford the new loan paymen💖ts. If you aren't sure, it may not be worth the risk—to both your financial standing and your relationship with the co-signer.