At certain times in your life, especially if you are just starting out, you may need a co-signer for a loan or other financial transaction. But what if you don’t know anyone who is willing or able to co-sign? Or what if you don’t want to strain your relationship with a friend or relative by asking them to? What are your alternatives?
Key points to remember
- If you’re having trouble getting a loan or renting an apartment on your own, asking a friend or relative to co-sign isn’t your only alternative.
- In the case of an apartment, see if you can sublet or cohabit with someone who already has a lease.
- You can also hire a professional co-signer service to guarantee your rent.
- If you want to borrow money and conventional lenders have turned you down, peer-to-peer lending might be an option.
When might you need a co-signer?
Suppose you want a car loan so you can drive to work. Public transport where you live is poor; relying on it severely limits where you can work, compromises your safety, or takes up too much of your free time. You are confident that you can make the loan payments, but you do not have enough income to qualify.
Maybe you just graduated from college and are trying to get your first apartment. You are no longer eligible for student housing, but you do not yet have a job and cannot convince a landlord to try your luck despite your good average.
Or maybe you’re trying to get back on your feet after unemployment or health issues depleted your savings and led you to default on your loans, hurting your life. credit history and making it impossible to get a new loan or a home.
Four alternatives to having a co-signer
Luckily, even though finding a co-signer would be difficult or impossible, you still have options. Here are four.
1. Become a sub-tenant or roommate
If you’re looking for an apartment, you can try to find a situation where someone else is already fully obligated to pay the lease but is looking for help with the rent. you could do it sublet someone who is traveling or had to move unexpectedly and was unable to terminate their rental agreement. You may also be able to rent a room from someone who will occupy the apartment with you but does not need to add your name to the lease.
In these cases, since the owner already has a signed agreement from someone who has passed a credit check, paid a security depositand promised to pay rent for the entire term of the lease, they may not check your credit or even care who is occupying the unit as long as they receive rent checks on time each month from the original tenant.
Ask the person you want to sublet or sublet with a copy of the lease, to make sure you won’t violate it. The person on the lease must get written permission from the landlord before moving in, and you must sign a sublet or roommate agreement with the tenant. Be aware of the possibility that if you pay the person on the lease rather than paying the landlord, they could possibly take your money and not give it to the landlord.
2. Use a co-signer service
To secure an apartment, you can also use a co-signer service. For a fee, they will guarantee your landlord that they will pay your rent if you don’t. You must apply for approval with a co-signer service, and there is often an application fee. If you are approved, the service will give you a co-signing certificate to submit with your rental application. It is up to the owner whether or not to accept your co-signer.
If the landlord agrees, you’ll have to pay the co-signing service a fee, calculated as a percentage of your rent, even though they never have to pay your rent for you. If the service has to pay rent on your behalf, then you will be obligated to pay it back.
A company that offers this service is Insured. It charges a one-time, non-refundable fixed fee based on a percentage of your rent after your apartment application is approved.
Note that if you can’t find a landlord willing to accept security for a co-signer service, you may be able to secure an apartment by putting up a larger security deposit or prepaying rent.
3. Try a peer-to-peer lender
If you want to borrow money and conventional lenders have rejected you, then peer-to-peer lending could be an option. The two most important companies in this field are Prosper and Lending Club. Both companies will verify your credit score when you apply, but they don’t require borrowers to have perfect credit, and you can use the borrowed money for a variety of purposes. The worse your credit score, the higher your interest rate will be and you may not be approved. However, it might be worth applying to find out.
Prosper has a “minimum recommended credit score” of 640. Lending Club does not list a minimum credit score requirement on its websitebut other sources reported that the minimum is 660.
If you can’t get a loan or an apartment without a co-signer, it could be a sign that now is not a good time to borrow money or commit to paying a lease.
4. Establish or rebuild your credit history
Lenders require co-signers when a borrower has no credit or damaged credit. Either way, you can create or re-establish a favorable credit profile by applying for secure credit card which will report your activity to Equifax, Experian and TransUnion, the three main credit bureaus. All you have to do is make one small purchase per month on the card and pay for it before the payment due date.
If your problem is that you have no credit, within about six months of starting to use your secured credit card, by borrowing only a little and paying it off quickly, you will complete two of the most important criteria for having a good credit score. : a stocking credit utilization rate, and an on-time payment history. At this point, you might qualify for a loan or an apartment without a co-signer, assuming you earn enough income.
If you’re repairing damaged credit, you may have to wait longer because the negative items stay on your file for years. Lenders must be convinced by your credit score that your new repayment history is not just about short-term change.
Should we rather wait to borrow?
If you can’t get a loan or an apartment without a co-signer, it could be a sign that now is not a good time to borrow money or have to pay a lease. Lenders and landlords want someone else to guarantee payment because they aren’t sure you’re getting what you pay for. It is possible that their concerns are justified.
Rejecting your loan or apartment application can be a blessing in disguise when you can’t really afford it. Instead of adding more stress to your situation by accepting another financial obligation – and dragging someone else into your problems by asking them to co-sign, which could harm an important relationship – look for alternatives that you can afford by yourself. They may not be ideal, but when your situation improves, you can reapply for another loan or another apartment.
It’s certainly frustrating not being able to live where you want or buy something you think you need, and most of us have been there at some point. But lenders and landlords make their decisions based on objective financial considerations, and you shouldn’t take their refusal personally.
If you can’t get or don’t want a co-signer, remember that you have a choice. They just require a little patience and thinking outside the box.