What is a Personal Loan With a Cosigner?

Key points:

• 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 a few reasons why someone might require a cosigner.

To qualify: A potential borrower might be unable to qualify for a personal loan on their own. They may be building their credit history or rebuilding their credit after a setback.

To save money: A cosigner might qualify for a lower interest rate than the borrower would on their own, which can help make the loan more manageable. 

How does a personal loan with a cosigner work?

Cosigners can be attached to several kinds of loans, including student loans, auto loans and personal loans, and they typically work the same way. (Note that Citi does not offer the option to add a cosigner to a personal loan.) Cosigners don't co-own anything the loan is paying for, and they don’t receive funds for a personal loan.

Though the process can differ by lender, typically, the cosigner puts their information on the application – this can include their income and any documents that can verify their identity. The lender usually performs a hard credit inquiry on both the principal borrower and cosigner’s credit.

The primary borrower receives the funds or owns the property purchased. Cosigners must repay the loan if the primary borrower cannot make payments.

Cosigner vs. co-borrower

Cosigners and co-borrowers are both ultimately responsible for loan payments, but cosigners don’t have ownership over the loan funds or property purchased.

A cosigner agrees to repay the loan if the borrower can’t. However, a cosigner doesn’t have access to the funds from the loan or ownership over assets purchased with that money.

A co-borrower, on the other hand, is equally responsible for all payments from the beginning and throughout the life of the loan. They have access to the loan’s funds and share ownership of any asset purchased with the loan.

Both cosigners’ and co-borrowers' creditworthiness can be negatively impacted if loan payments are missed.

Pros and cons of being a cosigner

There are benefits and drawbacks to cosigning on a personal loan.

Pros:

In general, cosigning for a loan can mean you’ll help someone – often a friend or family member – qualify for a loan they wouldn't qualify for or save money with a lower interest rate.

While usually not the main goal of cosigning a loan, you can also help someone build their credit by giving them the opportunity to build a credit history.

Cons:

Cosigners could be responsible for the full remaining loan amount if the borrower defaults. Cosigning a personal loan can also increase your debt-to-income ratio, a factor lenders consider when approving you for loans or lines of credit.

If you want to be removed as a cosigner later, this can be difficult. And if the primary borrower is unable to make their payments, this can damage your credit score, and possibly the personal relationship.

Does being a cosigner affect your credit?

Cosigning is a lot of responsibility – a cosigner is legally responsible for repaying the loan. If the primary borrower defaults, misses payments or if the account goes to collections, this can negatively affect the cosigner’s credit. To avoid this, some cosigners will make a budget with the primary borrower before taking out the loan and check in with them regularly to ensure everything is on track.

Being a cosigner can also improve your credit. If payments are made on time, this can help establish or reinforce a positive payment history, a major factor in improving your credit. A personal loan can also add to your credit mix – the types of credit you have, such as revolving credit and student loans – potentially improving your creditworthiness. 

Alternatives to being a cosigner

Being a cosigner isn’t right for every situation. Before you decide to become a cosigner, it’s important to understand what other options exist.

The borrower can look into certain government loans depending on the type of loan they need, which may be designed for people with low credit score or limited credit history. Or, the borrower could wait to get a personal loan and work on building their credit. If they improve their credit enough, they may qualify for a loan without needing a cosigner. 

Citi offers personal loans to both existing Citi customers and new Citi customers that meet specific eligibility criteria, including an established credit and income history along with additional factors determined by Citi. 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.