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What is a Cosigner?

Tricia Christensen
Updated May 16, 2024
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A cosigner is a person who can legally sign loan papers or documentation with another person who is having difficulty obtaining a loan, or sometimes getting a lease for an apartment or rental unit. As a cosigner, the person makes a legal agreement to be jointly responsible for repayment of the loan should the first signer fail to pay debts in a timely fashion. This is extremely important to understand for anyone who would cosign on documents. They risk their credit and their own financial status if the person who asked them to cosign does not meet his/her financial obligations. Moreover, sometimes when you cosign for a loan, it may impact your ability to obtain loans for yourself, since remaining unpaid debt may be considered “bad credit.”

With this proviso in place, it is important to state that there are many times if you have an impeccable credit history, where you cosigning on a loan could help someone else out. Parents or close family members may especially receive requests to be a cosigner for children of a family who either have poor credit, or who have no established credit history. Provided you feel fully assured that the person will be able to meet their debt without damaging your credit, or that you are financially able to pay the debt yourself if the other person defaults, it can be a helpful gesture toward launching someone’s credit history, helping someone obtain larger student loans, buy their first car, or purchase a house.

If you are asked to be a cosigner on a loan, then you should probably ask some questions. First off, you should ascertain a person’s ability to repay the debt they plan to contract, unless you intend to pay it for them from the onset. Second, you should ask what backup plans exist if the person is suddenly unable to make payments. Perhaps before cosigning, the person should place aside some money in an account to cover lean times, or things like job loss. Another thing that ought to be verified is that the person will notify you if they are going to be late on payments. Late payments can adversely affect your credit if you are a cosigner, and if a person does not inform you that they’ve fallen behind, you may be unaware that your credit rating is taking a hit.

Financial experts also advise that you consider the past history of the person asking you to be a cosigner. If you are cosigning because the person has bad credit, you may need to know what circumstances caused the poor credit history to occur and consider the likelihood of these circumstances being repeated in the future. They may not be. Bad credit, such as a bankruptcy can remain on credit reports for ten years under current US law. Bankruptcy in the past due to extraordinary circumstances may not mean the person is currently or will be in the future unable to pay their loans.

Another definition of cosigner is anyone who jointly takes out a loan to be used by two or more people. A husband and wife may cosign on a loan together, both accepting financial responsibility for a loan, or two partners in a business firm may do the same thing. It’s important to discuss in advance how payments are to be made, especially when they’re not coming from a single source (like a married couple’s bank account), so that each person maintains or improves their credit rating instead of damaging it.

SmartCapitalMind is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Tricia Christensen
By Tricia Christensen
With a Literature degree from Sonoma State University and years of experience as a SmartCapitalMind contributor, Tricia Christensen is based in Northern California and brings a wealth of knowledge and passion to her writing. Her wide-ranging interests include reading, writing, medicine, art, film, history, politics, ethics, and religion, all of which she incorporates into her informative articles. Tricia is currently working on her first novel.
Discussion Comments
By anon120115 — On Oct 20, 2010

Can you be a co-signer if you legally reside in the US, a.k.a. a foreign worker, but are not a citizen?

By anon52405 — On Nov 13, 2009

Does the person who is buying the car (not the cosigner) earn credit?

By anon38639 — On Jul 27, 2009

What i want to know if this person that cosigned for my stepson and they are not living together anymore and he is making payments but she is the cosigner. she wants the car back. does he have to give her the car back to her or as long as he making the payment he can keep it it until it is paid off? what is the best thing for him to do because he says that because she is the cosinger she can pick up the car because it is is her car. can you help?

Tricia Christensen
Tricia Christensen
With a Literature degree from Sonoma State University and years of experience as a SmartCapitalMind contributor, Tricia...
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