What It Means to Be a Cosigner—and How It Affects You

A cosigner can be the difference between getting approved for a loan and being turned down. When someone doesn’t have strong credit or enough income to qualify on their own, lenders may ask for a cosigner to step in. By adding their name to the loan, the cosigner gives the lender confidence that the debt will be repaid.

But cosigning isn’t just a favor—it’s a serious financial responsibility. The cosigner is equally on the hook for the payments, and any late or missed payments affect their credit just as much as the borrower’s. Done responsibly, it can help someone build credit and access financing, but the risks should be weighed carefully before saying yes.

What Is a Cosigner?

A cosigner is someone who signs a loan or credit card agreement alongside the primary borrower and agrees to take full responsibility if payments aren’t made. Lenders often require one when the borrower has limited credit history, low credit scores, or a high debt-to-income ratio.

When a cosigner is added, the lender evaluates both parties’ credit reports and income before approving the application. Once approved, the loan or credit card appears on both credit reports, and payment history affects both credit scores.

In practice, cosigning gives the borrower a chance to access financing they might not qualify for on their own while giving the lender extra assurance that the debt will be repaid.

Why Lenders Require Cosigners

Lenders often require cosigners when the primary borrower’s credit history or credit scores aren’t high enough or when the borrower’s debt-to-income ratio is too high. When a cosigner agrees to sign onto someone else’s loan, it provides a safety net for the lender. The cosigner’s good credit and steady income offer assurance that the loan will be repaid.

In some cases, a co-borrower may not have a credit history at all, making it difficult for lenders to assess their risk. This is common among young adults or immigrants who haven’t had a chance to build credit in the country. In such cases, having a cosigner can be invaluable.

Pros & Cons of Being a Cosigner

Agreeing to cosign can be a generous way to help someone you care about access credit, but it also comes with real risks. Here are the key pros and cons:

Pros

• Helps a family member or friend qualify for a loan, mortgage, auto loan, or credit card they couldn’t get alone.
• On-time payments benefit both the borrower and the cosigner’s credit history.

Cons

• You are legally responsible for the debt if the borrower fails to pay.
• Late or missed payments hurt your credit score and appear on your credit report.
• The loan increases your overall debt, which may make it harder to qualify for credit in the future.

Pros & Cons of Having a Cosigner

For the primary borrower, adding a cosigner improves approval odds and loan terms, but it also creates shared responsibility.

Pros

• Having a cosigner increases the likelihood of loan or credit approval.
• A cosigner can help you secure lower interest rates or better terms.
• Timely payments build your credit history and improve your credit score.

Cons

• Missed payments can damage both your credit score and the cosigner’s credit score.
• Defaulting on the loan can strain or even harm your relationship with the cosigner.

How Cosigning Affects Credit Scores

When you cosign a loan, it shows up on both your credit report and the borrower’s credit report. Credit bureaus view the account as shared, so it affects both parties equally.

For the borrower, it’s a chance to build credit if they make payments on time. For the cosigner, any late or missed payments will hurt their credit score and add to their debt load, which can make it harder to qualify for new credit.

How Cosigning Can Affect Relationships

Cosigning a loan or lease can put stress on personal relationships, especially if the borrower struggles to make payments. It’s important to remember that cosigning is not only a financial decision but also an emotional one.

Agreeing to cosign shows trust in the borrower’s ability to repay. If they fall behind, it can create tension, conflict, and even lasting damage to your relationship. Setting expectations in advance can help reduce these risks.

Here are some ways to protect both the relationship and your finances:

• Open communication: Talk honestly about the borrower’s financial situation and repayment plan before you sign. Make sure you both understand the risks.
• Set boundaries: Decide how late or missed payments will be handled and whether you are willing to step in if needed.
• Stay informed: Ask for access to the account or regular updates so you can monitor payments and avoid surprises.

What to Do If a Borrower Defaults

If the borrower stops making payments, the lender will hold you responsible as the cosigner. Taking quick action can limit financial and credit damage.

• Contact the lender: Reach out as soon as you notice missed payments. The lender may offer a payment plan or temporary hardship relief that gives you time to regroup.
• Communicate with the borrower: Talk with them about why payments were missed and whether they have a plan to get back on track.
• Consider legal advice: If the default continues, a legal professional can help you understand your rights and options.
• Protect your credit: If possible, catch up on the missed payments yourself to prevent lasting harm to your credit score.

Alternatives to Cosigning

Cosigning can help someone access credit, but it’s not the only option. Borrowers who want to build credit without a cosigner have several paths to consider.

• Credit-builder loans: Credit-builder loans, offered by some banks and credit unions, hold the funds in a savings account until the loan is repaid. Payments are reported to the credit bureaus, helping establish a positive credit history.
• Secured credit cards: Secured credit cards require a refundable cash deposit that usually serves as the credit limit. Responsible use and on-time payments can steadily improve a credit score.
• Secured loans: With secured loans, the borrower pledges collateral such as a vehicle or savings account. Approval is easier, but the asset can be at risk if payments are missed.
• Personal loans for bad credit: Some lenders approve personal loans to individuals with bad or no credit, but they often come with high interest rates. Borrowers should be sure they can manage the payments.
• Peer-to-peer lending: Online peer-to-peer lending platforms connect borrowers directly with individual investors. Terms may be more flexible than traditional banks, especially for those with weaker credit.
• Credit unions: Many credit unions have more flexible lending standards than banks. They may approve members with limited credit history and often charge lower fees and interest rates.

Steps to Take if You Decide to Cosign

If you choose to cosign, prepare yourself for the financial commitment before signing. A few smart steps can help protect both you and the borrower.

• Review the borrower’s finances: Look closely at their income, other debts, and credit report. Address any concerns about their ability to make payments before you agree.
• Understand your legal responsibility: Read the loan agreement carefully. Know the monthly payment amount, interest rate, and what happens if the borrower misses payments.
• Monitor the loan: Stay on top of the account after it’s funded. Ask the lender to notify you of late or missed payments so you can step in before your credit score takes a hit.

How to Remove a Cosigner from a Loan

Borrowers may want to remove a cosigner once their credit improves or their income increases. This can sometimes be done by refinancing the loan or applying for a cosigner release, though not all lenders offer this option. Lenders usually require a credit check and proof of income before approving the change.

If removal isn’t possible, the cosigner could refinance the loan in their own name. This would take the borrower off the hook but make the cosigner fully responsible for the debt, which can have serious financial consequences.

Bottom Line

Cosigning is a serious decision with lasting effects on your credit score and financial future. While it can help someone you care about access credit and build their history, it also places your finances at risk.

Before you agree, review the borrower’s situation carefully, understand exactly what you’re signing, and keep track of the loan after approval. Taking these steps can reduce the risks and help protect your credit.

Frequently Asked Questions

Does being a cosigner make it hard for me to get a loan?

Being a cosigner can affect your ability to get a loan. The loan you’ve cosigned for will appear on your credit report and could increase your debt-to-income ratio. If you apply for a loan, lenders will consider this when assessing your creditworthiness.

What happens if the primary borrower dies?

In most cases, the cosigner remains responsible for the balance. Some loans include provisions that cancel the debt upon the borrower’s death, so it’s important to review the loan agreement carefully.

Can I cosign a loan for a friend, or does it have to be a family member?

A cosigner does not have to be related to the borrower. Lenders accept friends, family members, or anyone willing and financially able to take on responsibility if the borrower defaults.

Can I cosign for more than one loan?

You can cosign for multiple loans, but each one shows up on your credit report. This increases your total debt obligations and may make it harder to qualify for credit of your own.

What is the difference between a cosigner and a co-borrower?

A cosigner guarantees the loan if the borrower defaults, but they typically have no ownership interest in the purchased item (like a house or car). A co-borrower, on the other hand, shares equal responsibility for repaying the loan and often shares ownership of the item purchased with the loan.