If you're on a Galaxy Fold, consider unfolding your phone or viewing it in full screen to best optimize your experience.
Sometimes it makes sense to apply for a loan along with another person. Understanding the different options and the role of a potential co-borrower can help you protect your finances and credit.
A co-borrower is another adult whose name appears on your loan documents. The lender will look at the co-borrower's income, debts, and assets along with yours. If your loan is approved, the co-borrower and you are 100% responsible for the debt. If the other person becomes unable or unwilling to make payments, you'll be legally responsible to foot the bill entirely.
Along with sharing responsibility for the debt, the co-borrower usually shares the benefit of the loan. For example, with a car loan, the co-borrower is an owner and has the right to use the vehicle. And when you get a personal loan, the co-borrower gets access to the funds.
As you consider what will work best for your own situation, be sure you understand the difference between a co-borrower and cosigner. A cosigner has financial responsibility but no ownership of the asset.
The main reason people apply together is to make qualifying easier. Being co-borrowers can be advantageous in other ways, too. Here's when it might be a good time to consider adding a co-borrower.
Get the best rates and terms to fit your needs. Here are a few loans we'd like to highlight, including our award winners.
Being co-borrowers on a loan is a serious financial commitment with many potential consequences. It's not appropriate for every situation. Here are a few examples of when you should carefully consider other options before adding a co-borrower.
It's perfectly legal to buy a house before marriage, but be aware of potential pitfalls.
If the relationship doesn't work out, removing one person from a mortgage can be costly and complicated. Laws that apply to divorcing couples might not apply to you.
Also, if you sell the home for more than you paid for it, you won't be able to take full advantage of the capital gains exemption. That's because married couples get a bigger benefit on net profits than single filers.
Unfortunately, if your credit score is less than perfect, getting a co-borrower won't make it better. And depending on your goal, getting a loan with a co-borrower may or may not help you.
If having a co-borrower will make the application easier for the lender to approve and it's appropriate for all co-borrowers to share ownership of the asset, going forward together could make sense.
If, however, you are trying to improve your credit, you've got other options that might help even more. It's entirely possible to get a loan with no credit, especially a credit-builder loan or a secured loan. Another strategy is to postpone your plans until you improve your credit and can get better terms on your own. You might be surprised at how quickly your score can go up, depending on the factors bringing it down.
When you become a co-borrower, the debt will show up on your credit report (and affect your credit score) just like any other loan or credit card account. The account type, account age, and payment history are factored into each co-borrower's score.
In one way, this is great. For example, if the account has a perfect history of on-time payments, you'll both get the benefit to your credit score. Payment history is one of the most important factors.
On the other hand, the debt could create an inconvenience that affects each borrower's debt-to-income ratio (DTI). A higher DTI could make it harder to qualify for a home loan in the eyes of mortgage lenders. This is true even if only one co-borrower has agreed to be responsible for making the payments. A high DTI could also affect either borrower's ability to get a car loan.
If you and your borrower have no intention of applying for other loans, having a joint debt on your credit report won't matter.
All applicants will need to meet lender requirements. The minimum credit score for a personal loan varies, but even if you qualify, the interest rate and fees can be quite a bit higher for applicants with bad credit. That's because virtually all lenders charge people who have poor credit more. And the lender might make an offer based on the lower credit score.
It's possible to increase your credit score in a very short time (sometimes just a few months). This is a good option if you have time to spare. Otherwise, if your co-borrower has poor credit and you don't need both incomes to qualify, the main borrower should apply alone for the better terms.
Any adult can apply for a loan as your co-borrower.
A co-borrower often lives at the same address as the primary borrower. But that isn't a requirement.
Keep in mind that it's best if your co-borrower has good credit. If the co-borrower on your loan application has a low credit score, you might qualify for less favorable terms than you could have gotten on your own. And if a co-borrower's credit is bad enough, you might be rejected altogether.
It's also important to remember that once the loan is approved, its payment history, age, and type will affect the credit scores of all co-borrowers on the loan.
Looking for a personal loan but don’t know where to start? Our favorites offer quick approval and rock-bottom interest rates. Check out our list to find the best loan for you.
We're firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. The Ascent, a Motley Fool service, does not cover all offers on the market. The Ascent has a dedicated team of editors and analysts focused on personal finance, and they follow the same set of publishing standards and editorial integrity while maintaining professional separation from the analysts and editors on other Motley Fool brands.
We're firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. The Ascent, a Motley Fool service, does not cover all offers on the market. The Ascent has a dedicated team of editors and analysts focused on personal finance, and they follow the same set of publishing standards and editorial integrity while maintaining professional separation from the analysts and editors on other Motley Fool brands.
Rates quoted are with AutoPay. Your loan terms are not guaranteed and may vary based on loan purpose, length of loan, loan amount, credit history and payment method (AutoPay or Invoice). AutoPay discount is only available when selected prior to loan funding. Rates without AutoPay are 0.50% points higher. To obtain a loan, you must complete an application on LightStream.com which may affect your credit score. You may be required to verify income, identity and other stated application information. Payment example: Monthly payments for a $10,000 loan at 8.49% APR with a term of 5 years would result in 60 monthly payments of $205.12. Some additional conditions and limitations apply. Advertised rates and terms are subject to change without notice. Truist Bank is an Equal Housing Lender. © 2024 Truist Financial Corporation. Truist, LightStream, and the LightStream logo are service marks of Truist Financial Corporation. All other trademarks are the property of their respective owners. Lending services provided by Truist Bank.
*Upstart Loan Disclaimer
The full range of available rates varies by state. The average 3-year loan offered across all lenders using the Upstart platform will have an APR of 21.97% and 36 monthly payments of $35 per $1,000 borrowed. For example, the total cost of a $10,000 loan would be $12,646 including a $626 origination fee. APR is calculated based on 3-year rates offered in the last 1 month. There is no down payment and no prepayment penalty. Your APR will be determined based on your credit, income, and certain other information provided in your loan application.
Citi Personal Loan disclaimer:
**Rates as of 05-31-2024. Your APR may be as low as 11.49% or as high as 20.49% for the term of your loan. The lowest rate quoted assumes excellent credit and a loan term of 24 or 36 months. Your APR will depend on a variety of factors including your creditworthiness, term of loan, and existing relationship with Citi. For example, if you borrow $10,000 for 36 months at 15.99% APR, to repay your loan you will have to make 36 monthly payments of approximately $351.52.
There is a 0.5% APR discount if you enroll in automatic payments at loan origination. Additionally, existing Citigold and Citi Priority customers will receive a 0.25% discount to the interest rate. If you are in default, your APR may increase by 2.00%. No down payment is required. Rates subject to change without notice.
You must be at least 18 years of age (21 years of age in Puerto Rico). Co-applicants are not permitted. Loan proceeds cannot be used for post-secondary educational or business purposes.
If you apply online, you must agree to receive the loan note and all other account disclosures provided at loan origination in an electronic format and provide your signature electronically.
Credit cards issued by Citibank, N.A. or its affiliates, as well as Checking Plus and Ready Credit accounts, are not eligible for debt consolidation, and Citibank will not issue payoff checks for these accounts. If you are unsure of the issuer on the account, please visit https://www.citi.com/affiliatesproducts for a list of Citi products and affiliates.