Can you get a personal loan with a co-signer?

Can you get a personal loan with a co-signer?

When you apply for a personal loan, the lender will usually review your credit history and financial situation before deciding whether to give you the money.

The decision may be straightforward from the lender’s point of view if you have an excellent credit score and can prove you have a high income. But if your application doesn’t meet the lender's requirements, you may be able to increase your chances of getting a loan with a co-signer.

A co-signer essentially gives the lender someone else to turn to if you are unable to pay your loan back.

While not all lenders are in favour of applying with a co-signer, some will consider it. Read on to know how to get a personal loan with a co-signer.

Here’s how you can get a personal loan with a co-signer

A co-signer agrees with the lender that they will take on the loan repayments if you can no longer pay them.

At the time of your loan application, both you and the co-signer have to submit your personal and financial information for review. Generally speaking, the lender will be looking to make sure the co-signer has a good history of paying back loans on time.

How do I know I need a co-signer?

If you have a great credit score and a good income, you’re unlikely to need the help of a co-signer. However, there are certain situations where people tend to consider using a co-signer on a personal loan application:

  • When unemployed: If you depend on welfare or sources of income other than your own, a co-signer on your application could help fulfil the lender’s income requirements. Keep in mind, there are other options available for people who are unemployed and it could be worth looking to community organisations and Centrelink for other loan options. 
  • A credit score that is less-than-perfect: A co-signer with stronger credit may increase the chance of approval or attract more competitive rates.
  • Borrowing more: Sometimes people are limited in how much they can borrow alone, but can borrow more with a co-signer.

What are the benefits and drawbacks of applying with a co-signer?

There are certain advantages of applying for a personal loan with a co-signer, which include:

There is also a flipside to applying for a personal loan with a co-signer:

  • It can take longer for application and approval
  • You could still get rejected if their credit isn’t good enough
  • If you default, it could affect their credit too
  • Your co-signer’s ability to borrow may be affected in the future
  • The loan could put a strain on your relationship.

What should I look for before approaching a co-signer for a personal loan?

Your co-signer needs to meet certain criteria to be eligible to cosign.

  • Generally speaking, the higher their credit score, the better the chances.
  • A co-signer should have a job, be over 18 years of age and be an Australian citizen or permanent resident.
  • They should have enough money in their budget to make monthly repayments if you stop paying.
  • A co-signer with a high debt-to-income ratio may not be eligible to take on the responsibility of another loan.
  • Once they sign on to your debt, they might find it challenging to qualify for a loan of their own.
  • Joint applications can be risky, and it’s important to trust the co-signers, which is why many applications are with relatives or close friends of the borrower.

What must I consider before I can get a personal loan with a co-signer?

Cosigning on a loan is a big responsibility, and if you default on the payment, your co-signer becomes liable. Answer these three questions before applying for the personal loan with a co-signer.

  1. How much are you borrowing? A small loan may be more attractive to a co-signer because it’s easier for you to repay. Plus, their liability is lesser with a smaller loan.
  2. How often do you need to make payments? Be clear about the frequency and other terms of repayment. This will affect your co-signer in case you default.
  3. What is the loan for? Be upfront with your co-signer about why you’re taking out a loan.

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Learn more about personal loans

What are the pros and cons of debt consolidation?

In some instances, debt consolidation can help borrowers reduce their repayments or simplify them. For example, someone might take out a $7,000 personal loan at an interest rate of 8 per cent so they can repay an existing $4,000 personal loan at 10 per cent and a $3,000 credit card loan at 20 per cent.

However, debt consolidation can backfire if the borrower spends the extra money instead of using it to repay the new loan.

How can I improve my credit rating/score?

Your credit score will improve if you demonstrate that you’ve become more credit-worthy. You can do that by minimising loan applications, clearing up defaults and paying bills on time.

Another tip is to get the one free credit report you’re entitled to each year – that way, you’ll be able to identify and fix any errors.

If you want to fix an error, the first thing you should do is speak with the credit reporting body, which may take care of the problem or contact credit providers on your behalf.

The next step would be to contact your credit provider. If that doesn’t work, you can refer the matter to the credit provider’s independent dispute resolution scheme, which would be the Australian Financial Complaints Authority (AFCA).

AFCA provides consumers and small businesses with fair, free and independent dispute resolution for financial complaints.

If that doesn’t work, your final options are to contact the Privacy Commissioner and then the Office of the Information Commissioner.

Can I get a personal loan if I receive Centrelink payments?

It is hard, but not impossible, to qualify for a personal loan if you receive Centrelink payments.

Some lenders won’t lend money to people who are on welfare. However, other lenders will simply consider Centrelink payments as another factor to weigh up when they assess a person’s capacity to repay a loan. You should check with any prospective lender about their criteria before making a personal loan application.

Can I get guaranteed approval for a bad credit personal loan?

Few, if any, lenders would be willing to give guaranteed approval for a bad credit personal loan. Borrowers with bad credit histories can have more complicated financial circumstances than other borrowers, so lenders will want time to study your application. 

It’s all about risk. When someone applies for a personal loan, the lender evaluates how likely that borrower would be to repay the money. Lenders are more willing to give personal loans to borrowers with good credit than bad credit because there’s a higher likelihood that the personal loan will be repaid. 

So a borrower with good credit is more likely to have a loan approved and to be approved faster, while a borrower with bad credit is less likely to have a loan approved and, if they are approved, may be approved slower.

Which lenders offer bad credit personal loans?

Several dozen lenders offer bad credit personal loans in Australia. These are generally smaller lenders that aren’t household names.

How are credit ratings/scores calculated?

Different credit reporting bodies may use different formulas to calculate credit scores. However, they use the same type of information: credit history and demographic profile.

They’re likely to look at how many credit applications you’ve made, which lender the applications were for, what purpose they were for, how much they were for and your repayment record. They’ll also look at your age and postcode. They’ll also look to see if you’ve had any bankruptcies or other relevant legal judgements against you.

Your score can change if your demographic profile changes or new information is added to your file (such as a new loan application) or existing information is removed from your file (i.e. because it has reached its expiry date).

What is bad credit?

A person is deemed to have ‘bad credit’ when they have a poor history of managing credit and repaying debts.

Can I get an easy/instant personal loan?

Some lenders are able to approve applications with little documentation and within minutes. However, there is a catch. People who take out easy/instant loans generally pay higher interest rates and are restricted to lower amounts than people who follow a traditional borrowing process.

How do I find out my credit rating/score?

You're entitled to one free credit report per year from credit reporting bodies like Equifax, Dun & Bradstreet, Experian and the Tasmanian Collection Service. You can also get a free report if you’ve been refused credit in the past 90 days.

Credit reporting bodies have up to 10 days to provide reports. If you want to access your report sooner, you’ll probably have to pay.

What are the pros and cons of personal loans?

The advantages of personal loans are that they’re easier to obtain than mortgages and usually have lower interest rates than credit cards.

One disadvantage with personal loans is that you have to go through a formal application process, unlike when you borrow money on your credit card. Another disadvantage is that you’ll be charged a higher interest rate than if you borrowed the money as part of a mortgage.

How do I know if I've got a bad credit history?

You can find out what your credit history looks like by accessing what's known as your credit rating or credit score. You're also able to check your credit report for free once per year.

What is an unsecured bad credit personal loan?

A bad credit personal loan is ‘unsecured’ when the borrower doesn’t offer up an asset, such as a car or jewellery, as collateral or security. Lenders generally charge higher interest rates on unsecured loans than secured loans.

What is debt consolidation?

Debt consolidation is the process of rolling several old debts into one new debt, usually to save money or for the sake of convenience.

Can I get a no credit check personal loan?

Personal loans with no credit checks are available and called ‘payday loans’. These are sometimes used as short-term solutions for cash-strapped Australians. They often carry higher interest rates and fees than regular personal loans, and individuals risk putting themselves into a worsened cycle of debt.