What Type of Loan Can I Get With a Cosigner?

What Type of Loan Can I Get With a Cosigner?

Written by Lisa Rennie
Fact-checked by Caitlin Wood
Last Updated March 23, 2022

Thousands of Canadians find themselves having plenty of trouble getting approved for loans of various types simply because they have bad credit and a difficult financial history. Despite their healthy income and ability to make payments every month, many would-be borrowers are unable to secure a loan on their own without some help.

In many cases, it might be very helpful and effective for borrowers to enlist the help of a co-signer who would be willing to back up the borrower in case they default on the loan and are no longer able to carry the loan payments.

What Is a Cosigner?

A cosigner is a person who signs your loan application with you to guarantee the loan and agrees to repay the debt if you don’t follow through with your promises to make payments. A co-signer basically allows you to “borrow” their credit to help make a lender feel more secure about extending funds to you if your credit history shows a trail of missed or late payments on previous loans.

Who Can Be A Cosginer?

The most common scenarios involving cosigners include parents cosigning on a loan on behalf of their children. However, cosigners can be anyone – including friends or other family members – who have a good credit history and have proven to be responsible with their finances in the past.

How Does A Co-Signed Loan Work?

If you are taking out a collateralized loan, such as an auto loan or mortgage, the cosigner doesn’t actually have any stake or interest in the car or home. They are not taking out a loan alongside you, but rather are putting their name on the loan as a promise to take over payments if you falter. Cosigners aren’t responsible for making loan payments until you fail to make payments and the lender can prove that payments haven’t been made.

What Types Of Loans Can You Get With A Cosigner?

With the large variety of loans available to Canadian consumers, you might be wondering, which loan options allow cosigners? 

Can I Get A Cosigner For An Auto Loan?

If you’re buying a car and your financial and credit profile is not strong enough to qualify you for a car loan, you may add a cosigner to your loan. Not only will this help increase your chances of loan approval, but it can also help you secure a better rate and more favourable terms. 

The cosigner has no ownership rights to your vehicle and their name will not have to appear on the title. However, the cosigner agrees to assume full responsibility for the loan if you default at any point throughout the loan term.

Check out what type of lenders accept cosigners.

Can I Get A Cosigner For A Personal Loan?

Yes, you can get a cosigner to help you secure a personal loan if you’re struggling to get approved due to a poor credit score, high debt levels, or low income. A cosigner will also help you receive a lower interest rate, saving you money over the long run. 

Your lender will be more willing to allow a cosigner to be added to your personal loan if you’ve been a client with them for a while. If you can’t keep up with your loan payments, your cosigner will be required to take over. 

Can I Get A Cosigner For A Mortgage?

Yes, you can. When a person cosigns your mortgage, that individual promises to pay the mortgage payments if you can no longer keep up with your payments. In a sense, the cosigner becomes somewhat of a co-borrower and part-owner of the property because they are assuming responsibility for the mortgage if you miss payments.

The lender will want to vet the cosigner. For instance, the cosigner’s credit history, income, and debt are all taken into consideration. 

Cosigning a mortgage is a significant risk for the cosigner, which is why it’s more common for immediate family members to assume this role, rather than friends or acquaintances. For example, some parents may cosign a mortgage for their adult children or vice versa. 

Can I Get A Cosigner For A Debt Consolidation Loan?

If you have several loans or credit accounts and are struggling to keep up with the various bill payments, a debt consolidation loan may help. With a debt consolidation loan, you can use one loan to pay off multiple debts. Rather than several payments to have to worry about, you’ll be left with one easy-to-manage bill, often at a lower interest rate than many of the other debts you held. 

If you have trouble getting approved for a debt consolidation loan, you may be able to have a cosigner added to the loan contract. A cosigner will help strengthen your loan application by making up for a weak credit profile and income. If you fail to make payments at some point throughout the loan term, the cosigner will be responsible for repaying the debt.

Can I Get A Cosigner For A Student Loan?

Yes, you can get a cosigner for your student loan, as long as the person has a qualifying credit history, a steady income, and a relatively low debt load. Again, the cosigner will need to agree to assume the responsibility of making payments in case you fail to keep up with your loan obligations. 

Not only does a cosigner help you access post-secondary educational financing that you would otherwise have trouble securing, but it can also help you build credit.

Can I Get A Cosigner For A Business Loan?

Yes, lenders allow entrepreneurs looking to take out a business loan to have another person sign on as a cosigner. If your credit score is a little on the low end and you don’t have any assets that are valuable enough to back the loan, a cosigner can help you secure a business loan

As is the case with other loan types, a cosigner of a business loan must repay the loan balance in the event that you are not able to.  

Pros And Cons Of Getting A Cosigner 

Before getting a cosigner for your loan, you should understand the perks and drawbacks that come with this type of arrangement.

Pros

  • Helps you qualify for a loan. If your credit score and income are low and your debt load is too high, you might have a tough time qualifying for a loan. Adding a cosigner with a favourable credit history and financial profile will increase your odds of loan approval.
  • Helps you rebuild your credit. Having a loan and making timely payments on it can over time help you establish your credit profile. If you can’t get approved for a loan, you won’t have this opportunity. But a cosigner can help you access a loan to help you build your credit score
  • Get better terms and lower interest. Even if you could get approved for a loan without the help of a cosigner, you might not be able to get the best terms or lowest rates. With a cosigner, however, you may qualify for a lower rate to help you save money and may even get approved for a higher loan amount if needed.  

Cons

  • May affect your relationship with the cosigner. The cosigner is assuming a huge risk if you fail to make payments in the future. If that happens, your relationship with the cosigner can be negatively affected. 
  • Cosigners are at risk. If you default on the loan, the cosigner may be stuck paying late fees and collection costs. Even worse, they may face litigation if the loan is not paid.
  • Missed payments affect both your credit scores. Missing loan payments will not only have an effect on your credit profile but could also affect your cosigner’s.

How Does A Cosigned Loan Differ From One That Isn’t?

The difference between a cosigned loan and one that has no cosigner is the fact that the former has another consumer backing up the primary borrower, while the latter does not. In the case of a traditional loan, no cosigner is available to guarantee the loan, so if you default, there is no one there to take over your payments if you falter.

Cosigned loans, on the other hand, offer some assurance to the lender that the loan payments will be made even if the borrower is unable to make payments on their own. Of course, there’s always the chance that the cosigner may default on the loan payments as well if they are unable to repay the loan, for whatever reason.

However, the chances of getting approved for a loan without established or good credit are much higher with the inclusion of a cosigner.

What Can You Do If You Can’t Get A Cosigner?

If you’re unable to find a suitable cosigner, your best bet may be to take steps to establish or improve your own credit and wait until your credit history is strong enough to support loan approval. There are several things you can do right now to help you give your credit rating a boost:

  • Take out a secured credit card Secured credit cards are easier to get approved for and require security in the form of a deposit, which becomes your credit limit. This is a great way to build credit from the ground up if you’re unable to get approved for a traditional unsecured credit card.
  • Make payments – Once you’ve got your hands on a credit product, be sure to make all payments on time and in full every month.
  • Keep your credit card expenditures low – It’s never a good idea to spend up to the limit on your credit card. Whatever your credit limit may be, try to spend no more than 30% of it every month. Credit utilization plays a big role in credit score calculation.
  • Don’t apply for too many loans – Putting out too many loan applications within a short amount of time can harm your credit score. Instead, resist the urge to apply for too many loans, which will leave a “hard inquiry” on your credit report and pull your score down.

How To Choose A Co-Signer?

Before you decide to ask someone to become a cosigner for you, it’s important to take a few things into consideration first.

  • Choose someone who has good credit
  • Choose someone who you trust
  • Make sure your relationship will be able to withstand any potential issues with the loan
  • Be sure to have your finances in order
  • Crunch the numbers to ensure you’re financially capable of making the loan payments

Deciding to get help from a cosigner is a big decision, so take some time to think about your options before you ask someone to cosign on a loan for you.

Co-signed Loan FAQs

What credit score does my cosigner need? 

A cosigner will need to have a healthy credit score to satisfy the lender’s criteria. Generally speaking, anything over 650 or higher should suffice, depending on the lender and other lending criteria.

Does getting a cosigner affect my credit? 

No, getting a co-signer will not negatively impact your credit. Instead, having a cosigner to help you get approved for a loan may actually help you improve your credit.

Who can be a cosigner? 

A cosigner can be anyone with good credit that meets the lender’s requirements.

Why do some lenders ask for a cosigner?

In the eyes of the lender, a cosigner reduces the risk and adds a certain amount of legitimacy to the loan. Lenders are not in the business of losing money and are out to make it instead. If adding another person to the loan who has established credit and a good credit score is willing to back you up in case you default on your loan, the lender still has some recourse by requiring the cosigner to take over the payments.

Conclusion

After much consideration, you may have decided to take out a loan with a cosigner. Your next step is to find the right lender and loan that’s best suited for you. To do that, be sure to get in touch with the experts at Loans Canada to help you find the ideal loan product for you!

Lisa has been working as a writer for more than a decade, creating unique content that helps to educate Canadian consumers in the realms of real estate, mortgages, investing and financial health. For years, she held her real estate license in Toronto, Ontario before giving it up to pursue writing within this realm and related niches. Lisa is very serious about smart money management and helping others do the same. She's used a variety of financial tools over the years and is currently growing her money with Wealthsimple, while stashing some capital in a liquid high-interest savings account so that she always has a financial cushion to fall back on. She's also been avidly using her Aeroplan TD credit card to collect as many Aeroplan points as possible to put towards her travels!

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