What to do when you can’t get a co-signer

Young man speaking on the phone while sitting in front of a laptop and considering what to do when you can't get a cosigner.Image: Young man speaking on the phone while sitting in front of a laptop and considering what to do when you can't get a cosigner.
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When interviewing for my first real job, I hesitated at a question posed by my prospective employer. The question was: “Do you have reliable transportation to get to work?” I responded “yes” even though I didn’t, figuring I could get a loan and buy a car prior to my starting date.

I got the job offer, but the borrowing process didn’t go as planned. In my zeal to avoid debt in college, I had turned down credit card offers. As a result, I didn’t have any credit history and couldn’t qualify for a loan on my own.

Only after my dad consented to be a co-signer did the bank approve my loan request. Still, I wonder what would have happened if I hadn’t had an agreeable parent with good credit scores.

You may find yourself in a similar situation. Perhaps you need a co-signer to borrow money for your first credit card, apartment or private student loan. But what can you do if you can’t find a co-signer? Consider these three approaches.

1. Get a loan from a nontraditional source

If you can’t get a loan from your bank or credit union, don’t fret — there are other ways to borrow money.

Try arranging a private loan with a friend, family member or anyone who’s willing to loan money to you. This may allow you to borrow money using a more favorable arrangement, rather than a bank’s potentially stricter terms and higher interest rates.

And while family members may not require a written agreement, remember that a loan is still a contract and your family or friend will expect you to pay back the loan in full. Some may even charge you interest. Before borrowing money from friends or family, make sure you understand the relationship dynamic and what the repayment expectations will be.

In addition, it’s important to keep in mind that borrowing from a loved one likely won’t help build your credit, as he or she probably won’t report your payments to the credit bureaus.

2. Build your own credit

Even if you arrange a loan through a friend or family member, it would be best for you to make a plan to build your credit through traditional means so you can avoid this in the future.

One way to do so is by getting a secured credit card or small installment loan from a lender who reports to at least one of the three credit reporting bureaus. With a secured credit card, you typically make a cash deposit to serve as collateral for the credit card issuer. Your credit limit is typically equal to or a percentage of your deposit.

Learn more about how to build credit with our step-by-step guide.

3. Look at alternative solutions

What should you do if the loan offers you receive don’t suit your budget or you need to move quickly? It may be time to get creative.

For example, it you’re looking to lease an apartment, becoming a roommate or subtenant may be an option if you find a co-signer for the lease. You might even be able to avoid a credit check if you’re not responsible for paying the rent directly to the landlord, though you may be asked to prove that you can make the payments.

If you’re looking for an auto loan you may want to consider financing through franchise dealerships associated with major automobile manufacturers.

But keep in mind that the best rates and loan terms go to those with higher credit scores. We always encourage you to shop around before taking any loan offer to make sure you’re getting the best possible terms for your situation.

What’s next?

If you can’t find a co-signer for a loan you may still have options that can help you achieve your goals. Whether they include borrowing from a friend or family member, or working to establish your credit history, working on your credit might eventually eliminate your need for a co-signer.