If you find it difficult to get approved for a loan, your lender (or even your financial adviser) will likely suggest that you find yourself a cosigner who will back up your loan application.
But there are also cases where this is not possible. And you are left with no choice but to take on the loan yourself.
So how do you get a loan without a cosigner? Before we get to the tips, let’s first get to know what cosigning is all about.
What is Cosigning?
Before your loan application is approved, the lender will first look at your ability to make repayments. To determine this, the lender will look at the following:
- Your credit score
- Your income
- Your debt-to-income ratio
Now if they think that the numbers do not reflect your ability to repay, they will convince you to get a cosigner to take on the loan with you.
A cosigner is a person who will back you up during the loan repayment process. This means that if you fail to make the payment, the lender can also chase after this person to collect the money that you owe.
Most of the time, the lender will only approve of the application if the cosigner has a strong credit history and sufficient income.
Why This is Not a Good Idea for Some People
Getting a cosigner is a good idea for some, but not for others. For one, you do not want to place burden on another person. You are the one who owes the money. You should be the one financially responsible for it. It’s not good to get others involved as this will surely strain your relationship with that person should you encounter any problem paying back the loan.
Alternatives to Cosigning
If you don’t get approval for the loan you are applying for, there are several alternatives that you can consider in place of getting a cosigner.
# 1 – Work to build your credit history
If the reason your loan application was rejected is your low credit score, then it’s better to take the time to work on it first. Yes, it takes time, but it’s possible to rebuild your damaged credit by making prompt payments for bills and debts. It’s also a must to get a copy of your credit report to see if there are any errors that you should report.
# 2 – Increase your income
Since the income is another area that the lenders look at to determine your ability to repay, you might need to increase your income to get approved the next time. You can look for a job that gives a higher pay, or you can supplement your income with a business or a part-time job. The important thing is that you try to augment your income to show the lender that you have the means to pay back the loan.
# 3 – Borrow a smaller amount
Talk to the lender who rejected your loan application, and see if it’s possible to get approval for a loan of a smaller amount. In many cases, this technique has worked for the borrowers. A lender might feel that your income is not enough to make payments for a loan of a certain amount, but would be convinced to lend you the money if you only borrow half of it.
# 4 – Put down a bigger down payment
Another solution is to put down a bigger down payment. This will not only result of higher chances of loan approval, but will also give you lower costs (lower interest rates and lower monthly payments), which is a good thing overall.
# 5 – Search for more lenders
Just because you did not get pre-approval from one or two lenders, it does not mean that the result will be the same for all the other lenders. The financial market is huge and there are many other options that you can check out. You can consider applying a loan with smaller financial institutions such as credit unions, regional banks and online lenders.
If you do not want to get a loan with a cosigner, then don’t. It makes sense to want to take on this financial responsibility on your own. There are other strategies that you can take on if your loan does not get approved.