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.
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.
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:
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 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.
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).
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.
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.
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:
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.
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.
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.
There are plenty of situations that would potentially warrant getting a co-signer on a loan, including the following:
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.
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.
Save time and money with Loans Canada. Research and compare lenders before you apply. Share your experiences with Canada's top lenders.
Loans Canada is pleased to announce it placed No. 131 on the 2022 Report on Business ranking of Canada’s Top Growing Companies.
Frank Mortgage is Canada’s one-stop shop for mortgages. Get up to $1,500 cash back on your mortgage.
Great unsecured credit card for customers currently in, or recently discharged from, a consumer proposal or bankruptcy
Earn an average 5%¹ cashback at thousands of partners and at least 0.5%² cashback guaranteed with Neo.
KOHO’s Credit Building Program helps you build a better credit history with easy to manage payments for just $10/month.
All consultations and conversations with Loans Canada and its partners are confidential and risk-free. Speak with a trusted specialist today and see how we can help you achieve your financial goals faster. Loans Canada and its partners will never ask you for an upfront fee, deposit or insurance payments on a loan. Loans Canada is not a mortgage broker and does not arrange mortgage loans or any other type of financial service.
When you apply for a Loans Canada service, our website simply refers your request to qualified third party providers who can assist you with your search. Loans Canada may receive compensation from the offers shown on its website.
Only provide your information to trusted sources and be aware of online phishing scams and the risks associated with them, including identity theft and financial loss. Nothing on this website constitutes professional and/or financial advice.
