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Consumer Credit: What Is A Co-Signer?

Consumer Credit: What Is A Co-Signer?

At some point in your life you will either ask or be asked to be a cosigner. Sometimes it is a parent cosigning an auto loan for their teenage driver and other times it is a recent college graduate asking a relative or significant other to cosign a personal loan to pay off credit card debt. Regardless of the situation however, understanding what cosigning is and the legal and financial implications is important before you make any decision.

Why Have A Co-Signer?

There are numerous reasons why an individual may need a cosigner in a particular situation. Recent high school or college graduates may not have established enough of credit history to qualify for a loan. It is common for parents to cosign used automobile loans to assist their children. These cosigning agreements tend to be less risky as the parent can dictate how much the loan will be and probably understands their child about as well as anyone can with regards to trust.

The other most common type of situation where someone may need a cosigner is in regards to bad credit. If a significant other has a questionable credit history then they may ask their partner to cosign a loan for them if they don't qualify on their own. This is a much more risky situation as there is no family connection or obligation to repay the loan and risk of default is substantially higher. It is never recommended to cosign a loan unless you are virtually guaranteed that the individual has the means and motive to uphold their end and make payments.

Should You Be A Co-Signer?

The question of whether or not you should be a cosigner is a touchy subject for most individuals. There is a high expectation for parents to help out there children when they get started in life and move into adulthood. This doesn't mean every parent should do it, it just means there is more pressure to help out those you love. Parental obligation is, for the most part, the only situation where an individual should cosign a loan. More removed family relationships, such as cousins, or couples should never cosign loans. You may care about the person and want to help them out but the risk to your credit should they default outweighs the benefit they'll receive from the cosigning.

Co-Signer Obligations

The reason why it is highly recommended to avoid cosigning a loan for anyone other than children is due to the legal and financial obligations. When someone cosigns a loan they become equally responsible for the debt. What this means is that if you cosign an automobile loan with a boyfriend or girlfriend for $5,000 under the stipulation that they will make payments you will be just as responsible as they are should they default. Just because they stopped paying on the loan doesn't mean it doesn't need to be repaid. The loan originator will be able to legally come after you as you are just as responsible for the loan in question. This can lead to collections or legal judgment against you as the cosigner for the outstanding debt. When you cosign a loan you put yourself on the line and jeopardize your credit and financial resources if they fail to make payments.

Can You Stop Being A Co-Signer?

Generally speaking it is not possible to stop being a cosigner on a loan because the situation has changed. Normally when you cosign a loan you are on it until it is repaid in full. This isn't written in stone however and some lenders will allow changes to an existing loan contract if a significant portion of the balance has already been repaid. If a parent cosigns a 36 month auto loan for their child and there is only 8 to 10 months left it may be possible to be removed by having an amendment or second contract written. For the most part however, when you cosign a loan it is as if you took out the loan yourself and will not be nullified until the balance is zero.


Cosigning a loan for another individual requires a significant level of trust. If you've spent decades building a credit history and have a high credit score then you place that at risk when you cosign a loan for someone else. It is normally better for the individual who needs a cosigner to make the time and effort to build or repair their credit history instead of seeking help from others. It shows more dedication and responsibility to get your current financial house in order and obtain your own loan than to count on others to risk their own financial future.

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