Can’t get approved for a loan on your own? Lenders will sometimes suggest that you use a co-signer to strengthen your application. But sometimes that’s not feasible, and for whatever reason, you may need to get a personal loan with help from another person.
To convince lenders that you’re good for the money, figure out what lenders want and shop with the right lenders to increase the odds that you will get approved for a personal loan without a co-signer.
Definition of a Co-Signer
A co-signer is a person who acts as the backer of another person's loan. This means that if the borrower doesn't pay back the loan as promised, the co-signer must pay the lender what the borrower owed.
Adding a co-signer to a loan gives the lender two potential people to collect from (and two potential incomes to fund payments). This person is 100% on the hook for the debt just as you are.
Why You Need a Co-Signer
Lenders evaluate your loan application to determine the likelihood that you will repay. They primarily look at two things to predict your ability to repay: your credit scores and your income. A lackluster credit score or income are key reasons why you may need a co-signer. If the lender isn't confident that you can repay on your own, they may not approve your loan without having a financial backup person.
Having a co-signer with a strong credit or high income can increase the odds of loan approval for riskier borrowers who may be ineligible for a loan on their own. This is because the co-signer's backing of the loan reduces the odds of loan default, protecting the lender's assets.
Getting a Personal Loan With No Co-Signer
Even if a lender explains why you need a co-signer, you may have to forgo one. There are two main scenarios where you may need (or want) to get a personal loan without a co-signer:
- You might not have access to a co-signer. This may be because you don't know anybody who can (or will) co-sign.
- You might prefer to take full responsibility for the loan and leave everybody else (and their assets) out of it. Without a co-signer, lenders can only collect from you, the primary borrower.
Think seriously about adding a co-signer to a loan. Failing to make payments on the loan will negatively affect the credit for both you and your co-signer.
If (at First) You Don’t Get Approved
If lenders tell you that you can’t get approved on your own, don’t just take their word for it. There are several solutions available (some of them are faster than others) if you need to get a personal loan with no co-signer.
Improve Your Financial Profile
While by no means the quickest solution, you can increase the odds of getting a personal loan with no co-signer if you improve the metrics that lenders rely on most to determine your ability to repay a loan. To do so, take the following steps:
- Build credit: If you can’t get a loan with no co-signer because you have bad credit, work on improving your credit. Whether you’ve never had the opportunity to establish credit or you’ve missed payments in the past, you can always rebuild—it just takes time. Of course, for students and people under 21 years old, that’s a challenge. These individuals can try to get a small credit line or a cash-secured loan from a bank to build their credit.
- Add income: Banks approve or deny loans based on how much of your income will be eaten up by the monthly payments, which they calculate using your debt-to-income ratio. Many lenders look for a ratio of under 36%. Increasing your income (through a part-time job, for example) can increase your chances of getting approved because it reduces your debt in relation to your income.
- Fix errors: Sometimes, errors in your credit reports hold you back. Removing those errors by contacting the credit bureau that generated the erroneous report can help improve your credit scores.
- Pay down debt: Your credit score and your available monthly income are both influenced by your existing debts. Getting rid of debt makes it easier for you to get new loans because you won’t appear to be maxed out, and you’ll have one less monthly obligation. With important loans like home loans, "rapid rescoring" after paying off debt (or fixing errors) can result in higher credit scores within days.
Consider Other Lenders
You may have been told “no” by one lender, but there are other lenders out there. Shop around with smaller institutions, including regional banks and credit unions. Newer online lenders (including peer-to-peer lenders) are also often willing to work with borrowers who have less-than-perfect credit. Some online lenders approve loans based on metrics beyond your credit and income, such as the degrees you’ve earned. These provide options for people who don't have much credit.
Lenders might have denied the loan you originally applied for, but they might let you borrow less without adding a co-signer to your application. Run some calculations to find out how different loan amounts come with different monthly payments (resulting in an improved debt-to-income ratio). Making a bigger down payment on the loan can also improve your loan-to-value ratio and make the loan more attractive to lenders.
You can also borrow against an asset that you own, using it as collateral. Unfortunately, this is a risky strategy—you might lose the asset if you’re unable to repay the loan (the bank can take your property and sell it to get its money back). If you borrow against your vehicle, for example, the bank can repossess it. Likewise, lenders can foreclose on your home if you don’t keep current on a home equity loan.
Look Into Student Loans
If you’re trying to get a student loan, you’ve got many options for borrowing without a co-signer.
Start by applying for federal student loan programs (also known as Direct Loans) through your school’s Financial Aid Office. To do so, you’ll need to fill out the FAFSA form and provide information about your finances. Federal student loans are the most borrower-friendly loans available—they’re relatively flexible when it comes to repayment, and you might even get help paying interest costs.
Stafford loans, in particular, may be attractive. They’re available for full-time, part-time, graduate, and undergraduate students. Your credit is not an issue, so anybody can get these loans without a co-signer (as long as you meet the necessary criteria for Stafford loans).
For private student loans, it’s best to start borrowing with federal student loans. If you need more than the maximums allowed, you also can borrow from private lenders. Private lenders are much more likely to require a co-signer (unless you have sufficient credit and income). But that’s not always the case—and you might have income and credit as a graduate student—so it’s worth considering if you're determined to get a personal loan with no co-signer.