The Bottom Line. A co-applicant can increase the loan funds you qualify for, so if you're contemplating a large purchase, it may be wise to have one. If you just need a good credit history to gain a lender's confidence, a co-signer will likely suffice.
Do you need a co-applicant on your loan application? If you can't qualify for a loan on your own, adding a co-applicant can make good sense. Additionally, a co-applicant rather than a cosigner makes sense when both parties want access to the money and the responsibility of repayment.
Applying for a joint personal loan might make it easier to get your application approved, get a lower interest rate, and qualify for more money than with an individual personal loan.
Applying with a co-applicant who has a higher credit score than you can help you get approved for a lower interest rate and other more favorable loan terms. And because the incomes of two applicants are being taken under consideration, this could help you get approved for a larger loan.
The Risks Of Taking On A Co-Applicant
For credit cards, it means both parties can use up all available credit and both are held responsible for repayment. In this case, you could be stuck with repayment if your co-borrower decides not to help.
A co-applicant is an additional person considered in the underwriting and approval of a loan or other type of application. Applying for a loan with a co-applicant can help to improve the chances of loan approval and also provide for more favorable loan terms.
Being a co-signer itself does not affect your credit score. Your score may, however, be negatively affected if the main account holder misses payments.
If you both have a good credit history, you're more likely to be accepted, as well as secure a competitive interest rate – such as the advertised 'representative APR'. Once accepted for a joint loan, you'll need to designate a bank account for the direct debit repayments to go out from.
And while the terms are similar, a co-borrower — or joint applicant — shares ownership of the loan and assumes responsibility for payments from the start. On the other hand, a co-signer is only liable for the loan if the primary borrower fails to make payments.
You cannot simply list a spouse's income with, or instead of, your own if you apply in your name alone. However, you can list their income if your spouse agrees to become a “co-borrower” on the loan.
Both co-borrowers' names will appear on all loan documents. When you and your co-borrower apply for a joint personal loan, a lender will consider both of your credit scores, debt-to-income ratios (DTIs), whether your income is consistent and possibly an array of other personal financial details.
Lenders determine what's called the "lower middle score" and usually look at each applicant's middle score. For example, say your credit scores from the three credit bureaus are 723, 716 and 699, and your partners are 688, 657 and 649. Lenders will then use the lower of the two middle scores, which is 657.
Instead of using the lowest median credit score of all co-borrowers, Fannie Mae requires lenders to use the average of the median credit scores of both borrowers. Your qualifying score may be higher if you recruit a co-borrower with a good credit score, which can boost your chances of approval for a conventional loan.
Requirements for a $20,000 Personal Loan
Requirements vary by lender, but most lenders require borrowers to have a credit score in the good to excellent range — meaning a score of at least 670.
It can increase your debt-to-income ratio.
Lenders look at your debt-to-income ratio when considering you for a new credit account. If you already have a high amount of debt, adding a co-signed loan could impact your own ability to qualify for additional credit.
Several factors can ruin your credit score, including if you make several late payments or open to many credit card accounts at once. You can ruin your credit score if you file for bankruptcy or have a debt settlement. Most negative information will remain on your credit report for seven to 10 years.
Lenders can consider the credit scores of both borrowers when co-signing an auto loan. If you have a lower credit score, having a co-signer with a higher score could work in your favor. In terms of which credit-scoring model is used for approvals, that can vary by lender.
Using a co-signer can help improve your chance of loan approval and help you get better terms, especially if you have poor credit or a no credit history. Co-signers have to meet minimum income requirements to prove they can handle the loan in case the primary borrower defaults.
Does it matter who's the borrower and who's the co-borrower? Since the borrower and co-borrower are equally responsible for the mortgage payments and both may have a claim to the property, the simple answer is that it likely doesn't matter.
The better your credit score and history, the better your chances of approval. Income: Lenders check your income to determine your ability to repay the loan. Debt-to-income ratio: This ratio compares your monthly debt payments to your monthly income. Lenders use it to determine how much you can afford to borrow.
The most competitive loan terms are generally reserved for borrowers with good or excellent credit. A lower credit score doesn't mean you'll be denied a loan, but your borrowing costs will likely be higher. Most importantly, run the numbers to make sure a personal loan makes sense.
Borrowers with good to excellent credit are still most likely to get approved for a loan, although the rates offered are likely to be much higher than they would have been last year.
Most types of home loans will only allow you to add one co-borrower to your loan application, but some allow as many as three. Your co-borrower can be a spouse, parent, sibling, family member, or friend as an occupying co-borrowers or a non-occupying co-borrowers.
For example: Let's say you're credit score is 590, you're interest rate could be anywhere from 10-15% for your loan. If you add a co-signer with a credit score of 720, then you're interest rate could instead be anywhere from 5-7%.
Both borrowers are equally responsible for the loan. During the application process, the lender will assess both the borrower and co-borrower's creditworthiness. If you have a less-than-perfect credit profile, a lender might be more likely to approve you for a personal loan if your co-borrower has excellent credit.