What Types Of Lenders Accept Cosigners?

What Types Of Lenders Accept Cosigners?

Written by Bryan Daly
Fact-checked by Caitlin Wood
Last Updated September 21, 2022

Have you made a few bad choices in your financial past that have caused your credit scores to suffer? Are you having trouble securing a loan because of your poor credit history? If so, you might be able to get approved for the loan you need by getting a cosigner.

What Is A Cosigner?

A cosigner is someone who agrees to back up a borrower and their debt in case the borrower is unable to follow through with their loan payments and ends up defaulting on the loan. Should this happen, the cosigner will step in to take over the payments, as agreed, until the end of the loan contract.

Cosigners must have good credit and a sound financial history in order to be eligible to assume this important role. The better the cosigner’s credit and financial history, the higher the odds of loan approval. Cosigners are important in the realm of the lending world, as many consumers would not be able to get their hands on a loan without their help.

Lenders That Accept Co-signers

There are plenty of lenders out there who allow cosigners to sign on a loan. In Canada, these lenders may allow you to apply with a cosigner:

Banks

Depending on where you look, some financial institutions accept co-signers on certain types of loans. If you’re an existing client who has a good long-standing relationship with the bank, that may affect your bank’s likelihood to lend to you. This is especially true if your income and/or credit aren’t great.

Credit Unions

Credit unions offer many of the same services as banks, only they operate as non-profit organizations that are owned by their members. All members have a partial stake in the union and can elect a board of directors to manage the community’s best interests. 

Earnings are then dispersed amongst the members in the form of low-interest rates, reduced fees and good payment terms on products, like loans. Credit unions may also provide small loans for individuals with bad credit if they have a cosigner or collateral. 

Private Lenders

Unfortunately, some financial institutions will turn you down as a non-member or someone with weak finances. In that case, you may be able to find an alternative or peer-to-peer (P2P) lender in Canada where you can get a loan with a cosigner. 

Although private lenders don’t always offer this service, some are more lenient with their lending policies and requirements, once you show them that your loan will be repaid, regardless of the circumstances (which is where a cosigner can come in handy). 

Mortgage Lenders 

Since mortgages are very risky, it can be difficult to qualify for one when your credit or income isn’t fantastic. Don’t worry, there are many banks, credit unions and alternative lenders that will offer you a mortgage if you have a strong cosigner.

A cosigner should be someone with a solid income, credit score and payment history. Basically, they must be able to cover your payments if you can’t afford them, which is why parents and other family members commonly act as cosigners for mortgages.

Car Loan Lenders

Like mortgages, auto loans often come with strict requirements because of the financial danger involved. So, if a car loan lender considers you a risky applicant due to bad credit or a low income, they may tell you to find a cosigner before approving you.

Luckily, if you shop around and compare deals, it’s not tough to find an auto lender who accepts cosigners and offers reasonable loans. Once again, they’re probably looking for someone with a good income, high credit score and low debt-to-income ratio.

Who Can Be A Cosinger?

Trusted family members and friends are the most common but anyone who meets the lender’s standards can technically act as your cosigner. Requirements may vary but most lenders will only accept a cosigner who:

  • Is a Canadian citizen or permanent resident (with an address in Canada).
  • Is at least the age of majority in their province or territory (18 – 19). 
  • Has a stable income and healthy credit history.
  • Has an active bank account in their name.
  • Can clearly handle any payments, interest or fees they might be assigned.     

How Does Having Someone Cosign A Loan Work?

For the majority of lenders, creditworthiness is the predominant factor when it comes to assessing the risk level of a loan applicant. Having a cosigner with excellent credit can strengthen a loan application. In this situation, the cosigner is basically lending their good credit in order to help borrowers get approved for a loan of different types. Cosigners can also help borrowers get a higher loan amount and a lower interest rate.

Cosigner Responsibilities

By signing the loan contract, cosigners take on the responsibility of repaying the loan if the borrower is unable or unwilling to. Both the borrower and the cosigner are equally liable for the funds borrowed.

Once a cosigner is added to a loan and the documents have been signed, it is not easy to have them removed from the loan. Cosigners are attached to the loan until it has been fully repaid, which is why it is essential that people considering becoming a cosigner think long and hard about this decision.

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Cosigner vs. Co-borrower

Some people use the terms “cosigner” and “co-borrower” interchangeably, but they are actually two different things. Both cosigning and co-borrowing can help borrowers qualify for a loan, but it’s important to distinguish between the two.

A cosigner promises to pay back the loan if the borrower is unable to. Basically, cosigners are individuals who help you get approved for a loan. On the other hand, a co-borrower – or joint applicant – also places their name on the loan and borrows the funds along with you. In this way, a co-borrower shares equal liability for paying back the loan and making regular payments. In most cases, co-borrowers are spouses who take out a loan with each other, namely a mortgage.

The main difference between the two is the fact that cosigners don’t have any ownership interest in the home that the mortgage is being taken out to finance. For example, with a mortgage, a cosigner may be responsible for making payments if the borrower defaults, but they have no ownership rights to the property. They’re essentially not responsible for making monthly payments unless the borrower fails to do so.

A co-borrower, in this case, would have an equal responsibility to make monthly payments and would have ownership interest in the property.

When Do You Know It’s Right To Get A Cosigner?

There are plenty of situations that would potentially warrant getting a co-signer on a loan, including the following:

  • You have bad credit
  • You have no established credit
  • Your credit history is too short
  • You don’t meet the requirements to qualify for a loan on your own
  • Your debt-to-income ratio is too despite earning a good income
  • You are self-employed
  • You need a larger loan amount than what your lender is willing to offer you
  • You want to get a lower interest rate

If you find yourself in any one of these situations, getting a cosigner may be an option to help you out. Of course, you should only get a co-signer and take out a loan if you are financially able and responsible to make the payments and if you are able to find a co-signer who is equally responsible with their finances.

Cosigners FAQs

Can I get a cosigner for a secured loan?

Yes, most types of loans allow you to apply with a cosigner. That said, it really depends on your lender’s policies and how much money you’re trying to borrow. 

How is a cosigner different from a joint applicant?

A joint applicant or co-borrower applies for the loan with you, thereby agreeing to share any benefits and debt involved. However, cosigners only become involved when the primary borrower can’t handle their payments.     

Who can be a cosigner?

The most common type of cosigning relationship tends to be between parents and their adult children who may need some assistance getting approved for a loan. In this case, parents may agree to become cosigners in order to help increase the odds of their children securing a loan. However, other people may be cosigners, including friends and other family members.

Bottom Line

It can be tough to find the right loan product when you have bad credit, thankfully you can get a cosigner to help you secure the loan you need. Cosigners can also help you secure loans with lower rates, flexible terms and higher loan amounts.


Rating of 4/5 based on 4 votes.

Bryan is a graduate of Dawson College and Concordia University. He has been writing for Loans Canada for five years, covering all things related to personal finance, and aims to pursue the craft of professional writing for many years to come. In his spare time, he maintains a passion for editing, writing screenplays, staying fit, and travelling the world in search of the coolest sights our planet has to offer.

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