Co-signing 101: Applying for a loan with co-borrower

January 25, 2023

If you’re struggling to qualify for a loan, you can have a friend or family member step in to help. But first, both sides should weigh these considerations before signing into any financial agreement.

 

For college students and other young people, getting a loan typically isn’t as easy as walking into a bank and filling out some paperwork. Financial institutions understandably want to know the money they’re lending will be paid back. People who are too young to have earning power or lengthy credit histories simply aren’t attractive to lenders. In these circumstances, a co-applicant – otherwise known as joint owner – might help the primary borrower’s chances of securing a loan.

Whether you’re the young person seeking the loan or the older adult (typically a parent or grandparent) considering being a co-applicant, you’ll want to weigh the following considerations before stepping into any kind of financial arrangement.

 

First things first: Do you really need a loan?

To a large degree, money is personal. How you choose to spend it is, ultimately, your business. But a loan technically isn’t your money. It’s money you’re borrowing and will have to pay back – with interest. If you’re asking a parent or grandparent to be a co-applicant, be mature enough to approach them with questions already answered, perhaps written down in a proposal format:

  • Why are you seeking the loan? 
  • Is this a need or a want? If it’s a need, explain why. If it’s a want, explain your rationale.
  • What is the amount?
  • Why is that particular amount needed?
  • How is this loan going to benefit you?
  • What is your plan and timeline for paying off the loan?
     

Protect the relationship you have with your desired co-applicant by being completely honest about your goals. If he or she agrees to be a co-applicant, be thankful. If not, respect the decision and move on. You’ll want the same respect someday if you’re ever on the receiving end of a similar request.

 

The upside of a co-borrowed loan

From the standpoint of a college student or other young borrower, the upside of a co-borrowed loan is obvious: You’re more likely to get a loan. Adding a co-applicant’s financial profile – credit history, income and savings – to your application will greatly increase your chances of obtaining a loan. Not only that, but the terms of the loan (the interest rate, for example) are likely to be more favorable.

Benefits exist for the older adult serving as co-applicant, as well. For starters, you’re helping your child or grandchild establish a solid credit score, which has far-reaching financial benefits. You’re also supporting whatever life goal the loan is funding. Just be sure to enter the arrangement with eyes wide open. If you’re not going to be okay – either financially or relationally – if your co-applicant doesn’t pay off this loan, don’t enter into the commitment in the first place.

 

How to obtain a co-applicant loan

A personal banker can be a great resource to help you navigate the loan application process. If you have questions about how to get started, talking to a banker is a good first step. 

If you already know that a co-borrowed loan is your goal, schedule a meeting with your personal banker, and bring the potential co-applicant with you to the appointment. Your banker will guide you through all of the loan options and considerations to make sure it’s a wise way to move forward.

 

Remember: you’re both at risk

In a co-applicant situation, which is typical with credit-card applications for example, the responsibility of each person on the account is the same. It can therefore be detrimental to both applicants’ credit if the relationship goes sour, or for any other reason the balance of the loan goes unpaid. Being clear on the potential negative ramifications of a co-applicant loan is essential.

All this said, it’s important to note that ultimately, a co-applicant loan can be an enormously helpful financial tool that makes both parties happy – and keeps them financially secure. 

 

Student loans and co-signers

Because of its popularity, student loan co-signing deserves some special attention. When parents (or grandparents, aunts, uncles, or friends) agree to co-sign a student loan, they are essentially giving control of their credit to the primary borrower. Why? Once a student loan is approved, its payment history will show up on the co-signer’s credit report – and any missed payments can hurt your credit. As with all “shared” loans, it’s important to enter into this financial relationship fully informed and fully ready to take on whatever responsibilities might be required of you as a co-signer.

 

Need to obtain a co-borrowed loan? Make an appointment with a banker to begin the loan process.

 

Related content

Evaluating interest rate risk creating risk management strategy

What you should know about buying a car

Credit: Do you understand it?

Is it the right time to refinance your mortgage?

6 questions to ask before buying a new home

What is a home equity line of credit (HELOC) and what can it be used for?

Your financial aid guide: What are your options?

9 simple ways to save

Here’s how to create a budget for yourself

Helpful tips for safe and smart charitable giving

Money Moments: 8 dos and don’ts for saving money in your 30s

What’s in your emergency fund?

What you need to know about renting

Maximizing your infrastructure finance project with a full suite trustee and agent

Preparing for retirement: 8 steps to take

How to build wealth at any age

Investment strategies by age

Your 5-step guide to financial planning

8 steps to take before you buy a home

What to know when buying a home with your significant other

Home buying myths: Realities of owning a home

Certificates of deposit: How they work to grow your money

5 financial goals for the new year

Retirement savings by age

Allowance basics for parents and kids

How I did it: Turned my side hustle into a full-time job

5 reasons why couples may have separate bank accounts

Common unexpected expenses and three ways to pay for them

It's possible: 7 tips for breaking the spending cycle

Closing on a house checklist for buyers

Multiple accounts can make it easier to follow a monthly budget

6 questions students should ask about checking accounts

At your service: outsourcing loan agency work

30-day adulting challenge: Financial wellness tasks to complete in a month

How to build a financial plan that covers your savings and expenses

How I did it: Bought a home without a 20 percent down payment

How I did it: Switched career paths by taking an unexpected pivot

What you need to know before buying a new or used car

Year-end financial checklist

An investor’s guide to marketplace lending

What is a CLO?

Beyond Mars, AeroVironment’s earthly expansion fueled by U.S. Bank

ABL mythbusters: The truth about asset-based lending

Collateral options for ABL: What’s eligible, what’s not?

Can ABL options fuel your business — and keep it running?

Evaluating interest rate risk creating risk management strategy

Managing the rising costs of payment acceptance with service fees

3 reasons governments and educational institutions should implement service fees

Higher education and the cashless society: Latest trends

Tech lifecycle refresh: A tale of two philosophies

Changes in credit reporting and what it means for homebuyers

4 benefits of independent loan agents

Middle-market direct lending: Obstacles and opportunities

Streamline operations with all-in-one small business financial support

Talent acquisition 101: Building a small business dream team

How to fund your business without using 401(k) savings

Costs to consider when starting a business

How to test new business ideas

How jumbo loans can help home buyers and your builder business

When to consider switching banks for your business

5 tips to help you land a small business loan

Good debt vs. bad debt: Know the difference

Good money habits: 6 common money mistakes to avoid

How to talk about money with your family

Retirement income planning: 4 steps to take

Preparing for retirement: 8 steps to take

11 essential things to do before baby comes

Webinar: Uncover the cost: Starting a family

Preparing for adoption and IVF

Checklist: 10 questions to ask your home inspector

Checklist: financial recovery after a natural disaster

How does money influence your planning?

College budgeting: When to save and splurge

Student checklist: Preparing for college

Uncover the cost of a college diploma

How to save money in college: easy ways to spend less

The A to Z’s of college loan terms

Co-signing 101: Applying for a loan with co-borrower

Practical money skills and financial tips for college students

How to build credit as a student

5 things to know before accepting a first job offer

Learn to spot and protect yourself from common student scams

How I did it: Paid off student loans

Bank Notes: College cost comparison

Tips to earn that A+ in back-to-school savings

How to avoid student loan scams

Webinar: U.S. Bank asks: Are you safe from fraud?

What to do with your tax refund or bonus

5 tips for creating (and sticking to) a holiday budget

5 things to consider when deciding to take an unplanned trip

Stay committed to your goals by creating positive habits

Growing your savings by going on a ‘money hunt’

Working with an accountability partner can help you reach your goals

Does your savings plan match your lifestyle?

Uncover the cost: Wedding

Are savings bonds still a thing?

Tips to overcome three common savings hurdles

Adulting 101: How to make a budget plan

Personal loans first-timer's guide: 7 questions to ask

Mindset Matters: How to practice mindful spending

How can I help my student manage money?

Things to know about the Servicemembers Civil Relief Act

You can take these 18 budgeting tips straight to the bank

Do you and your fiancé have compatible financial goals?

U.S. Bank asks: Transitioning out of college life? What’s next?

U.S. Bank asks: Do you know your finances?

U.S. Bank asks: Do you know what an overdraft is?

Personal finance for teens can empower your child

How to save for a wedding

Dear Money Mentor: How do I set and track financial goals?

How to stop living paycheck to paycheck post-pay increase

Bank from home with these digital features

How grandparents can contribute to college funds instead of buying gifts

How to open and invest in a 529 plan

Using 529 plans for K-12 tuition

Is a home equity loan for college the right choice for your student

Parent checklist: Preparing for college

How to apply for federal student aid through the FAFSA

What to consider before taking out a student loan

Are you ready to restart your federal student loan payments?

Everything you need to know about consolidating debts

How to use debt to build wealth

What’s a subordination agreement, and why does it matter?

Understanding the true cost of borrowing: What is amortization, and why does it matter?

Your quick guide to loans and obtaining credit

Dear Money Mentor: What is cash-out refinancing and is it right for you?

Overcoming high interest rates: Getting your homeownership goals back on track

What are conforming loan limits and why are they increasing

Money Moments: Tips for selling your home

Money Moments: How to finance a home addition

How I did it: My house remodel

These small home improvement projects offer big returns on investment

Should you get a home equity loan or a home equity line of credit?

Is a home equity line of credit (HELOC) right for you?

How to use your home equity to finance home improvements

How do I prequalify for a mortgage?

Can you take advantage of the dead equity in your home?

4 questions to ask before you buy an investment property

10 uses for a home equity loan

Test your loan savvy

Should you give your child a college credit card?

Take the stress out of buying your teen a car

Questions to ask before buying a car

How to choose the best car loan for you

Start of disclosure content

Loan approval is subject to credit approval and program guidelines. Not all loan programs are available in all states for all loan amounts. Interest rate and program terms are subject to change without notice. Mortgage, Home Equity and Credit products are offered through U.S. Bank National Association. Deposit products are offered through U.S. Bank National Association. Member FDIC.