Should You Cosign a Personal Loan?

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By: Matt Diehl

Mar 7, 2019

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4 minute read

Summary

It’s important to recognize the risks and responsibilities of cosigning a loan. Here’s some information to help you make the best choice.

In this article:

Your phone rings. A friend or family member says they’re applying for a personal loan and need a cosigner to get approved. If they ask you, what would you say?

As with any financial decision, it’s important to recognize the risks and responsibilities of cosigning a loan. Here’s some information to help you make the best choice:

How does cosigning work?

A cosigner signs a loan application to help improve the chances of someone else getting approved for the loan. Cosigners are generally needed when the person applying for a loan fails to meet a lender's borrowing requirements. This can happen due to a low credit score, insufficient income or other factors. In order to improve the odds of getting approved, the cosigner must have a higher credit score or income than the applicant.

Some lenders do not allow cosigners. However, they may accept collateral such as a car or motorcycle to secure the loan.

What’s the difference between a cosigner and co-borrower?

You may have heard the terms cosigner and co-borrower before. Although there are small differences between the two, and they could be described differently in a legal contract, they share one very important detail: both are 100% legally liable to pay back a loan if the primary borrower defaults.

To be clear, it may be typical for lender to seek repayment from the primary borrower first. Some cosigned loans are structured this way. However, the lender is still within their legal right to seek repayment from either party. So even if your name is #2 on the contract, you are equally responsible for making sure that loan gets paid back in full and on time.

Pros and cons to consider

These can vary depending on your situation, but all are worth considering:

Pros

  • You can help the person get approved — If someone close to you has fallen on hard times or is rebuilding their finances, you could have an opportunity to help them succeed.

  • You can help the person get a lower interest rate — Depending on your credit profile, you could help the person get a lower interest rate. Other factors that influence interest rates may include the primary borrower’s credit score, the term of the loan and whether collateral is being used.

  • You can diversify your types of credit — Having different types of credit obligations may be one of the less significant factors in your credit score, but if you don’t have any installment loans on your credit report, adding a new type of credit could increase your credit score.

Cons

  • You’re responsible for repayment – You are on the hook for repaying the loan, along with the borrower. So, if they miss any payments, you could face collection action from the lender, unless you make the payments yourself.

  • Missed payments can affect your credit score — Since your credit profile is attached to the personal loan, any missed payment can lower your score.

  • It might be harder to get a new loan for yourself — Adding new debt could negatively impact your credit profile and make it harder to be approved for a loan yourself.

  • Your relationship could be strained — If there are any disagreements about the loan, it could cause tension between you, the primary borrower and other friends and family.

Think it through

Helping someone you care about can be a special opportunity. However, before you decide, make sure you’re 100% comfortable with signing, or not signing , the dotted line.

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This page was last updated on June 28, 2021.

This article is for general education and informational purposes, without any express or implied warranty of any kind, including warranties of accuracy, completeness, or fitness for any purpose and is not intended to be and does not constitute financial, legal, tax, or any other advice. Parties (other than sponsored partners of OneMain Financial (OMF)) referenced in the article are not sponsors of, do not endorse, and are not otherwise affiliated with OMF.

Frequently asked questions

Here are a few things that affect your eligibility

  • Financial history Credit history
  • Income and expenses
  • Loan purpose
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  • State of residence

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  • From the start of the application to receiving the funds could be as quick as one day.*
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  • Signing your loan documents: After final loan approval, signing your closing documents takes about 30-45 minutes.
  • Receiving your funds: When using your debit card to receive funds, you can get your money as soon as an hour after signing the loan docs.1 Funds can also be paid out by direct deposit (ACH), which are available approximately 1-2 banking days after loan closing. A check can be issued as soon as the same day as the closing.

*Timing may vary based on: when you submit your application, how many documents are needed for approval, and how long it takes for OneMain to receive, review, and verify those documents, and whether your loan is secured by collateral, among other factors.

Are you still wondering "Is a personal loan right for me?" Don't worry – we're here to help. Just call (800) 961-5577 or find a branch near you.

If you're approved for a loan, you may see secured or unsecured next to your offer. A secured loan requires that you provide collateral, like a vehicle. An unsecured loan doesn't require any collateral from you.

Keep in mind that there are eligibility requirements such as the condition and age of your motor vehicle and proof of insurance. Also, if a borrower defaults on a secured loan, the lender has the right to take the collateral.