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Can't Find a Cosigner for Your Loan?

Here's what to do

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If you are applying for a loan for the first time, banks will often request that you have someone cosign your loan. Your cosigner agrees to take over payments if you stop paying. Their longer, more established credit history reassures the bank and makes lending to you less risky. Many young borrowers ask their parents or other close family members to cosign their loans. But what if you can't get a cosigner? Thankfully, there are a few alternative options to explore.

Apply at Smaller Financial Institutions

If you applied for a loan at a large, national bank and were told you could not be approved without a cosigner, then your next step should be to apply at a few different banks. Look for at least one smaller, independent bank and at least one credit union, and put in some loan applications.

Every lending institution has somewhat different standards, and smaller banks are often willing to lend to borrowers who the larger banks turn down. Smaller banks are also more likely to offer manual underwriting. This basically means they'll look deeper into your payment history, job history, and other personal details rather than only relying on your credit score to determine whether or not they will lend to you.

If the reason you were asked to get a cosigner was that you don't have much of a credit history or a credit score, then borrowing from a bank that does manual underwriting can be a really good choice.

Consider Making a Larger Down Payment or Borrowing Less

The bank may be requesting that you have a cosigner because your income is not large enough to support the payments on the loan you want. For example, if you have an annual income of $40,000 and are applying for a personal loan of $20,000, the bank may not be confident you'll have enough money to make the payments, so they're asking for a cosigner with a higher income.

Find a way to borrow less money, and you may see your application approved without a cosigner. If you're borrowing the money for a car, is there a cheaper car you could buy instead? If you're taking out a personal loan to make home improvements, could you make some improvements now and save some for later? Sit down with one of the bank's loan officers and ask if there is an amount you could borrow without a cosigner, and go from there.

Spend Some Time Building Your Credit

Another option is to spend a few months building up your credit score and credit history to show the banks that you are a less risky borrower, even without a cosigner. If you do not have a credit card, sign up for one, and just make sure you pay off the balance every month. Your score should rise substantially within a few months. 

You should also review your credit report and ensure every entry on it is accurate. If you see any entries that are not your own, call the credit reporting bureau to dispute the entry. Usually, the bureau will remove the false entries within a few weeks, and your credit score will increase.

Having someone cosign your loan is often the easiest way to borrow money when you are young with a limited credit history. However, it is not the only way. If you can't get a cosigner, try the options above instead. Many small banks and credit unions will be happy to work with you.

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