How to Get a Loan Without a Cosigner
When you can’t get approved for a loan on your own, lenders sometimes suggest that you use a cosigner to strengthen your application. But sometimes that’s not feasible and, for whatever reason, you simply need to borrow without a cosigner. You might not know anybody who can (or will) cosign, or you might prefer to take full responsibility for the loan and leave everybody else out of it.
How can you convince lenders that you’re good for the money and get approved? Figure out what lenders want and shop with the right lenders to improve your chances.
Lenders evaluate your loan application to decide if they think you’re likely to repay. To do so, they primarily look at two things: your credit scores, and your income available to make loan payments. If they’re not confident that you can repay on your own, they won’t let you borrow without a cosigner.
Cosigners agree to make payments if you fail to — they’re 100 percent on the hook for the debt just like you are. Without a cosigner, lenders can only collect from you, the primary borrower. Adding a cosigner means there are at least two potential people to collect from (and two potential incomes to fund payments). Learn more about How Cosigning Works.
A cosigner with strong credit or a high income can help your application, but you might still be able to borrow without one.
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).
Build credit: if you can’t get a loan without a cosigner because you have bad credit, work on improving your credit. Whether you’ve simply never had the opportunity to establish credit or you’ve missed payments in the past, you can always rebuild — it just takes time. For students and people under 21 years old, that’s a challenge. Try to get a small credit line or a cash secured loan from a credit union.
Fix errors: sometimes errors in your credit reports hold you back. Removing those errors can lead to a quick improvement in credit scores.
Add income: banks approve or deny loans based on how much of your income will be eaten up by the monthly payments. To evaluate, they calculate a debt to income ratio, which they try to keep as low as possible. With higher income (from a part-time job, for example), you have a better chance of getting approved because the loan looks more affordable.
Borrow less: lenders might have denied the loan you applied for, but they might let you borrow less without adding a cosigner 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). A bigger down payment can also improve your loan to value ratio and make the loan more attractive to lenders.
Expand your search: you’ve been told “no,” 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 willing to work with borrowers who have less-than-perfect credit. Some online lenders approve loans based on degrees you’ve earned, even if you’ve never built credit before.
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.
Pledge collateral: 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 their money back). If you borrow against your vehicle, the bank can repossess it, and lenders can foreclose on your home if you don’t keep current on a home equity loan.
If you’re trying to get a student loan, you’ve got even more options for borrowing without a cosigner.
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 cosigner (as long as you meet the necessary criteria for Stafford loans).
Perkins loans are also a good deal for borrowers. Your credit scores don’t matter, but your ability to get a Perkins loan may be limited — they’re available based on financial need
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. However, private lenders are much more likely to require a cosigner (unless you have sufficient credit and income). That’s not always the case — and you might have income and credit as a graduate student — so it’s always worth asking.