Co-signing for Loans

Co-signing for Loans
  • Opening Intro -

    Many people new to borrowing hope to get a credit card or loan at a reasonable rate, but soon find out, they need a cosigner before the bank will even consider their application.


By law, anyone under the age of 21 is required to have a cosigner over the age of 21 for even small credit card limits, unless they can prove they have sufficient income of their own to manage the repayment of the loan.

Do you know what you’re getting into, if you cosign? Here are things you should consider before deciding to jump in and help.

The Risk for Co-signers

Cosigning is serious business and not simply a signature of approval. When you agree to cosign, you are taking on the legal liability for the account and all the debt applied. The potentially negative side will be seen, if the account is poorly managed. Late or missed account payments that are reported to the credit bureaus will show up on your credit reports, as well as the original borrower’s, with both credit scores potentially being damaged.

As a co-signer for a loan in default, you may be the target of a collection agency, being sued, having tour wages garnished, etc. Many states allow lenders and collection agencies to attempt to collect from the cosigner, in addition or even instead of the main account holder. So as a result of no fault on your part, you may have trouble getting approved for the credit you need down the road because of the mishaps on an account you cosigned.

Protect Yourself as a Co-signer

If you agree to sign on the dotted line as a cosigner, make sure the payment fits into your budget. You don’t want to put your finances at risk to help someone without knowing you can cover the payments if he/she bails. It’s a risk to cosign for someone who wouldn’t qualify for the loan on their own; remember that the lender wasn’t willing to take a risk, so give the idea plenty of thought before making a decision.

Never use your personal property as collateral to help secure a loan for someone else. If the borrower defaults, you could lose your property. If additional security of some source beyond obtaining a co-signer is required, the smart thing to do is deny the request to co-sign all together. Make sure you are given copies of all documents related to any co-signing agreement.

A contract to co-sign should include these key statements:

  • The cosigner will be responsible for only the principal, if the account goes into default
  • The bank will notify the cosigner, if the borrower misses a payment.

There are no tangible benefits for cosigning on a loan. The one positive to cosigning, is being able to provide similar assistance that you may have once needed and obtained when getting started in the world of finance. While it’s a risk, the measure of satisfaction with helping others has no limit…just be educated and prepared.

Noreen Ruth is a regular contributor to and numerous financial-related blogs and websites. She specializes in credit and debt-related issues and enjoys educating consumers about the latest rules and regulations, as well as ways to build, improve and maintain good credit. Follow her regular posts on the ASAP Credit Card Blog to stay up-to-date with the latest credit card news, reviews, information and more


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Categories: Loans

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