What you need to know about getting a co-applicant for a personal loan

Personal loans have become one of the largest debt categories in the U.S., since they typically carry lower interest rates compared to credit cards, and there are so many ways they can be used.

You can use a personal loan for almost anything, including emergency expenses, home repairs and renovations, a wedding, a funeral, a vacation and more. (Though, if your intention is to use a personal loan for educational costs or small business expenses, you'll have to double check with the lender's terms because many prohibit the use of personal loans for these purposes.)

Another draw to personal loans is that lenders typically offer a wide range of loan amounts — you can apply for as little as $500 and as much as $100,000, so there's a lot of flexibility there. But if you're on the fence about taking on a large loan, say for a major home renovation or a big wedding, the thought of paying it all back on your own can seem pretty daunting. However, this is where a co-applicant may be able to take off some of that pressure.

A co-applicant is someone who applies for the loan with you and is equally responsible for paying back the full loan amount. Co-applicants are often also known as co-borrowers, and they can usually be added onto your personal loan application form.

Co-applicants are not to be confused with co-signers, though. A co-signer is someone who may add their name to your application to help you qualify for a loan, but they aren't financially obligated to pay back the loan unless you are unable to continue making payments.

When applying for a personal loan, it's common for lenders to analyze your credit history, debt-to-income ratio and other credentials during the process to determine the size of your loan, your interest rate and the length of your loan term. Applying with a co-applicant who has a higher credit score than you can help you get approved for a lower interest rate and other more favorable loan terms.

And because the incomes of two applicants are being taken under consideration, this could help you get approved for a larger loan. You may be seen as less risky borrower if a lender knows that there are two sources of income that can be used to repay the entire loan.

Additionally, sharing responsibility for the personal loan may help lower your chances of missing a payment if you were to lose your source of income, since another person is also on the hook for making payments. Keep in mind, though, that if payments are missed, this can negatively impact the credit of both people on the loan.

Because co-applicants have a financial responsibility to repay what's borrowed, it makes sense for a co-applicant to be someone who will also benefit from the loan. Maybe you and your spouse are finally ready to tackle that home renovation you've been putting off for years; in this case, you might consider having your spouse be your co-applicant. Or maybe you need more funding to take the next step with your business; if you have a business partner, this person will also benefit from the money and, thus, may be willing to be your co-applicant (as long as the lender allows you to use the loan for this purpose).

Also having a co-applicant in these scenarios will be helpful if you don't have enough of a credit history under your belt to get approved for a lower interest rate. It may also help if you need to take out a larger amount of money but you don't have a steady income.

Additionally, some lenders, like SoFi Personal Loans, for example, require borrowers to have a co-applicant if they're a non-resident alien or a DACA recipient.

Not all personal loan lenders allow you to apply with a co-borrower or co-applicant. But here are some that do give applicants this option.

SoFi Personal Loans

SoFi Personal Loans do not require origination fees, but you can also borrow large sums. Applicants can borrow as little as $5,000 and as much as $100,000, which makes this personal loan a great option for those who need more money to cover bigger expenses.

You can get your loan funded the same day, or the next business day, providing you don't need to apply with additional information. And this lender also allows you to apply with a co-applicant.

When you sign up for a SoFi Personal Loan, you can join its membership platform to take advantage of a host of other perks like career counseling, financial advising and more.

LightStream Personal Loans

This lender provides personal loans for just about every purpose except for higher education and small businesses. The interest rate ranges depend on the type of loan you're taking out. 

LightStream doesn't charge any origination, administration or early payoff fees, and repayment terms range from 24 to 144 months. You can add a co-borrower during the application process.

LendingClub Personal Loans

LendingClub doesn't charge prepayment penalties, which means that if you decide to pay off your loan completely before your term is up, you won't face fees or penalties. Those looking for smaller loan amounts can benefit from a LendingClub loan, which start at $1,000. The maximum loan amount you can take out is $40,000. And like the other two lenders, LendingClub allows you to add a co-applicant when you're seeking funding.

A personal loan can be an instrumental way to get fast funding for large expenses. And while the thought of paying it all back can seem daunting, having a co-applicant take on the loan with you can ease some of that pressure.

Of course, not all personal loans allow co-applicants so you need to double check before you submit your application. And as always, seek professional advice from a financial planner if you're having doubts about whether a personal loan can help you achieve your goals.

*Your LightStream loan terms, including APR, may differ based on loan purpose, amount, term length, and your credit profile. Excellent credit is required to qualify for lowest rates. Rate is quoted with AutoPay discount. AutoPay discount is only available prior to loan funding. Rates without AutoPay are 0.50% points higher. Subject to credit approval. Conditions and limitations apply. Advertised rates and terms are subject to change without notice. Payment example: Monthly payments for a $10,000 loan at 7.99% APR with a term of 3 years would result in 36 monthly payments of $313.32.