cosigning

Cosigning is the act of signing a loan or credit agreement for another person, thereby taking on a shared obligation to repay the debt. A cosigner agrees to be legally responsible for the loan if the primary borrower cannot or does not pay.

Cosigners are typically sought when the borrower has limited credit history or insufficient income to qualify on their own. While the loan may improve the borrower's chances, the cosigner's credit and finances are at risk from the outset. Lenders can pursue repayment from either party, and late or missed payments can be reported on both borrowers' credit reports.

Co-signing is distinct from co-borrowing or guarantees. In many cases, a cosigner is equally liable from day one, whereas a guarantor may be liable only after the borrower defaults and after the lender exhausts remedies against the borrower. Terms vary by jurisdiction and loan type.

Removal and ongoing liability: Some lenders may release a cosigner after the borrower makes a set number of on-time payments or after refinancing. Until then, the cosigner should expect continued impact on their credit score and potential liability for the loan balance.

Practical considerations: Before cosigning, assess the borrower's ability to repay, review your own finances, and understand the loan terms. Consider alternatives, such as encouraging the borrower to build credit or choosing secured or smaller loans. Cosigning should be approached with caution due to potential legal and financial consequences.