As a co-signer, you assume legal responsibility for repaying the primary borrower’s loan if they default.
Jump to insightWhen you co-sign a loan, it will appear on your credit report and can impact your credit score if the primary borrower misses payments or defaults on the loan.
Jump to insightCo-signing a loan can be a good option for helping someone establish credit, such as a young person or someone with no credit history.
Jump to insightCo-signing a loan can put a strain on your relationship with the primary borrower, especially if they struggle to make payments or default on the loan.
Jump to insightWhat is a co-signer?
A co-signer is someone who agrees to provide financial backing to another person (usually a friend or loved one) who is taking out a loan. Legally, a co-signer is equally responsible for repaying the loan if the primary borrower defaults, and the obligation is enforceable in court.
“Adding a co-signer is usually most helpful for original borrowers who have a low credit score or short credit history,” said Kendall Meade, a certified financial planner at SoFi.
“The co-signer is only responsible for making payments if the original borrower is unable to. It is important to note that if a payment is missed or late, it affects both the borrower and co-signer’s credit scores,” she said.
In the case of an unsecured personal loan (without any collateral), co-signing provides the lender with greater certainty that the loan will still be repaid if the primary borrower defaults.
Legal rights and disclosures for co-signers
Understanding your legal rights and required disclosures is critical before agreeing to co-sign a loan. Co-signers take on significant financial and legal responsibility, and lenders are required to provide clear information about those obligations.
Co-signer vs. co-borrower vs. co-applicant
While co-signer, co-borrower and co-applicant may sound like similar terms, these roles differ in legal exposure and credit impact. Make sure you know which position you are agreeing to before proceeding. Here’s how they compare:
| Role | Legal responsibility | Typical use case | Example |
|---|---|---|---|
| Co-signer | Responsible for repaying the loan only if the primary borrower defaults | Personal loans, student loans, car loans | A parent co-signs a car loan for their child |
| Co-borrower | Equally responsible for loan repayment from the start | Mortgages, business loans | Two partners jointly apply for a mortgage |
| Co-applicant | Listed on the application, may not have repayment responsibility | Sometimes in rental agreements or small loans | A spouse listed to strengthen an application, but not legally obligated |
Required disclosures and notices
Federal law requires lenders to clearly explain a co-signer’s obligations. For example, the FTC “Notice to Cosigner” must be provided for certain consumer loans. This notice details:
- Your legal responsibility if the primary borrower fails to pay
- How missed payments can affect your credit
- The risks of late fees, default, and potential collection actions
Co-signers should receive these disclosures before signing to make an informed decision. Regulatory guidance from the Federal Trade Commission (FTC) and Truth in Lending Act (TILA) ensures lenders provide accurate and timely information, protecting co-signers from unknowingly taking on excessive financial risk.
How does co-signing a loan work?
When you co-sign a loan, you are just as responsible for paying back the loan as the primary borrower. If the primary borrower misses a payment or fails to repay the loan, the lender can take action to collect the money from you. As the co-signer, you are essentially guaranteeing the loan.
For example, let’s say a family member is hoping to consolidate their debt with an unsecured loan, but their credit score doesn’t meet a lender’s eligibility standards. They could ask you — someone with excellent or good credit — to become a co-signer and help them qualify.
You can co-sign several different types of loans, such as an auto loan for purchasing a car, a student loan for tuition fees or a personal loan for debt consolidation or home improvements.
Step-by-step process
- Application: The borrower applies for the loan and requests a co-signer.
- Credit review: The lender reviews both the borrower’s and co-signer’s credit histories.
- Approval: If the co-signer strengthens the application, the loan is approved.
- Loan agreement: Both parties sign the loan contract, acknowledging their responsibilities.
- Repayment: The borrower makes payments. If they default, the co-signer must repay the loan.
- Credit reporting: Payments and delinquencies are reported on both the borrower’s and co-signer’s credit reports.
Who is responsible for repaying the loan?
If the borrower is unable to repay their loan, you are legally responsible for stepping in to repay the lender. If you don’t, both your and the primary borrower’s credit scores will be negatively affected. Similarly, if the borrower is late on a payment, you will also receive a negative mark against your credit.
Pros and cons of co-signing a loan
Co-signing a loan can benefit your family member or friend by increasing their chances of loan approval and potentially securing a lower interest rate.
A ConsumerAffairs reviewer from Florida wrote that they needed a loan but had made a few mistakes in the past that led to a decreased credit score. “[The lender] told me that I would need a co signer because of my past history,” they said. “I told them I had one, so they set up a time for the two of us to come in and with a couple of hours I had the money that I needed so badly.”
Another aspect to consider is that co-signing a loan can benefit you, especially if you have a limited credit history. Being the co-signer to a loan when the primary borrower has strong creditworthiness can help you build up your credit score and credit history.
The most significant downside of co-signing is that you’ll be responsible for repaying the loan should your loved one or friend fail to do so. This could add a financial burden to your budget, and it could put your assets at risk if you fail to repay the debt as agreed.
The co-signed loan could also show up on your credit report and increase the amount you owe, which makes up 30% of your FICO credit score. Your debt-to-income (DTI) ratio will also increase, which may affect your ability to qualify for a loan.
You will also want to consider that your personal relationship with the primary borrower can be tarnished if the loan defaults.
Pros
- Helps the borrower qualify for a loan they might not get on their own
- Can help the borrower get a lower interest rate
- May build your credit if you have a limited credit history
- Supports friends or family in achieving financial goals
Cons
- You are legally responsible if the borrower misses a payment or defaults
- Late or missed payments can hurt your credit score
- Increases your debt-to-income ratio, which may affect your own borrowing ability
- Puts your personal finances and assets at risk if you need to cover the debt
FAQ
How can a co-signer get out of a loan?
One way to be removed as a co-signer is to have the debt refinanced into a new loan without the co-signer’s name. Other potential options include requesting a “loan release” from a lender, transferring the debt to a balance transfer credit card, or selling the asset connected to the loan and using the funds received to repay the debt (for a secured loan).
Can a co-signer take ownership?
As a co-signer, you share financial responsibility rather than ownership. For example, if you co-sign on a vehicle and the primary borrower stops making payments, you are on the hook for these payments, but you still do not have any claim of ownership because your name is not on the title. Depending on the circumstances, you may want to consider co-borrowing rather than co-signing, as this would give you legal ownership alongside shared financial responsibility.
Does being a co-signer build credit?
Yes, as a co-signer, you will be able to build credit and improve your credit score, provided the primary borrower pays on time. However, the opposite is also true. Being a co-signer can also negatively impact your credit score if the primary borrower has a late payment or defaults on the loan.
Does co-signing affect your ability to borrow?
Since co-signing a loan can affect your credit score, it may affect your ability to qualify for a loan. Co-signing will produce a hard inquiry on your credit report and increase your DTI ratio — a factor lenders consider when you apply for a loan.
But co-signing a loan doesn’t have to negatively affect your ability to borrow. As long as the primary borrower makes payments on time, your credit score will recover and might even increase, and if you have sufficient income, your DTI ratio will remain in a qualifying range for a loan.
What disqualifies a cosigner?
A cosigner may be disqualified if they don’t meet the lender’s financial or credit requirements. Common disqualifiers include having a low credit score, a DTI ratio, insufficient income to cover the loan or an unstable employment history.
Recent bankruptcies or major negative marks on a credit report can also prevent a lender from approving someone as a cosigner. Each lender’s criteria vary, but most look for strong, stable credit and the ability to take over payments if needed.
Article sources
ConsumerAffairs writers primarily rely on government data, industry experts and original research from other reputable publications to inform their work. Specific sources for this article include:
- Federal Trade Commission Consumer Advice, "Cosigning a Loan FAQs." Accessed Nov. 13, 2025.
- U.S. Bank, “Co-signing 101: Applying for a loan with a co-borrower.” Accessed Nov. 13, 2025.
