Cosigning a Loan: What It Means, the Risks, and How to Protect Yourself
Building credit is tough. Each of us starts the journey from having no credit score, so getting our foot in the door can be tricky.
That’s why young adults or people with poor credit scores often turn to older friends and family members with solid credit scores for assistance when trying to buy a house or car.
So should you help out a friend or family member by cosigning on a loan? The answer is almost always “no.”
It sounds harsh, but this generous act comes with real financial consequences that could wreck your credit and leave you digging out of debt for years.
“With cosigning, the thing you have to remember is that lenders want to lend money and charge you interest,” says Robin Hartill, a certified financial planner and former senior editor of The Penny Hoarder. “When they refuse to lend to someone, they’re passing on the chance to make money because they think it’s too big a risk.”
So if lenders say no, chances are good you should say no too.
But we’re getting a bit ahead ourselves. What even is a cosigner? We’ll cover both sides of the story — whether you need a cosigner or are asked to cosign — including the risks and protections you can expect.
What Is a Cosigner?
A cosigner is someone who agrees to take legal responsibility for another person’s debt if the borrower doesn’t pay, without any ownership of the loan funds or property. If you’re applying for a personal loan, auto loan, student loan, mortgage or lease, you may need a cosigner if you can’t qualify on your own because your credit score doesn’t meet the threshold or your income isn’t high enough.
Before you ask someone to cosign, see whether you can prequalify on your own at an online loan marketplace like AmOne or MoneyLion.
Cosigner vs. Co-Borrower: What’s the Difference?
The difference between being a cosigner on a loan and being a co-borrower is basically about what you share in terms of responsibility and ownership. Here’s a breakdown of the differences if you’re cosigner vs. co-borrower:
| Cosigner | Co-Borrower | |
| Access/ownership of funds/property | None | Shares with primary borrower |
| Repayment responsibility | Fully liable if the primary borrower defaults | Share responsibility with primary borrower |
Cosigner Requirements
Lenders typically require you to be able to qualify for the loan on your own to become a cosigner. That means, in addition to submitting the standard application materials for a loan, you’ll need to meet the following criteria:
- Good to excellent credit score — 670 or better — according to Experian
- Steady income
- Manageable debt-to-income ratio — the maximum DTI ratio for Fannie Mae is generally 36% of the borrower’s stable monthly income
Requirements vary by lender so be sure to understand them before applying.
The Risks of Cosigning a Loan
The risks of saying yes to cosigning are many — and they can have a real, long-term impact on your financial well-being. Here are some things to consider before cosigning a loan.
Your Credit
As the cosigner of a loan, you’re putting the debt in your name. The cosigned loan appears on your credit report and affects your credit score.
The initial application triggers a hard inquiry, which can drop your score temporarily by a few points. On-time payments can help and missed payments can hurt — your payment history counts for 35% of your FICO score. Any delinquent payments will adversely affect your credit score, and you may have to step in and spend your own money to protect your credit score — if it’s not already too late.
Additionally, the added debt can increase your credit utilization, which can also lower your credit score and make it harder to qualify for your own credit.
Your Cash
When you cosign for a loan, your signature is not meant to be a vote of confidence to assuage a lender. You are agreeing to pay the entirety of the loan if the borrower stops making payments — that includes missed payments, late fees and collection costs. And watch out for auto-default clauses, which allows the lender to demand the remaining full balance immediately if the borrower misses consecutive payments, dies or files bankruptcy.
Before cosigning, consider this: Could you afford to make those payments each month until the car, house or other financed item is paid off?
Remember that you’ll have nothing to show for those payments, because the borrower is the one who keeps the car, lives in the house, gets the college education (unless the car is repossessed or the house is foreclosed on).
If you, as the cosigner, do not make the payments when the borrower stops, the bank will step in — and this will affect your credit. The lender can also sue you, which could ultimately result in a lien on your home or garnishing of your wages.
Your Relationship
Financial consequences aside, cosigning for a loved one could also lead to a strained relationship — or even estrangement.
Before cosigning, ask yourself this: If the borrower ultimately decides not to hold up their end of the bargain, how will that affect your relationship? Will you be a “helicopter cosigner” who regularly checks in on their finances, risking resentment on their end? Will you know how to talk to the cosigner about missed payments? What happens if your borrower refuses to pay; will you lose that relationship?
“I’d caution people to think very carefully about the harm cosigning can do to a relationship,” Hartill said. “cosigning is something you do to help someone you care about. But if they fail to do what they agree to and your finances suffer as a result, it’s going to be tough to mend that relationship.”
Know Your Rights: Notice to Cosigner
Under the Federal Trade Commission’s Credit Practices Rule, lenders must give cosigners a Notice to Cosigner explaining their obligation to pay the full amount of the debt plus any late fees and collection costs if the borrower does not pay. The rule also requires lenders to notify cosigners that the lender may collect the debt from the cosigner without having to try to collect from the borrower first. Some states require creditors to pursue the borrower first. Be sure to read the full loan agreement (including auto-default clauses) before signing.
Cosigning a Student Loan
Private student loans commonly require a cosigner, but federal student loans generally don’t. If a friend or family member asks you to cosign a private student loan, suggest they exhaust federal options first. Some private lenders offer cosigner release options, but it’s usually available only after the borrower has made a specified number of on-time payments. And it’s still unlikely — a 2015 study from the CFPB found that 90% of private student loan borrowers who appleid for cosigner release were rejected.
Cosigning a private student loan can be risky if you’re nearing retirement and needing the additional money to cover your own cost of living. A 2019 AARP survey found that 25% of private student loan cosigners age 50 and older had to make a loan payment because their student borrower didn’t. Remember: You’re just as obligated to pay back these loans as you would be had you taken them out for your own education.
Cosigning a Car Loan
Cosigning an auto loan can help the borrower qualify for a loan or get better terms. But considering the most popular car loan over the past decade has become a 72-month car loan (that’s six years), you could be on the hook for a while in you cosign.
If the primary borrower defaults on the loan, the lender could repossess and sell the vehicle. And depending on state law, the lender could sue you and the primary borrower for the outstanding loan balance.
Regardless of the outcome, cosigning a loan doesn’t give you any ownership rights to the vehicle.
How to Protect Yourself Before You Cosign
Sometimes, saying no is impossible. Private student loans, for example, typically require a cosigner, forcing parents to sign their life away in the interest of their child’s education. As the cosigner for any type of loan, you can protect your investment and credit by doing the following:
Reach an Agreement With the Primary Borrower
It doesn’t mean you won’t still end up on the hook, but talk to the primary borrower about alternatives to having you cosign a loan:
- If they can’t qualify for a loan because of upfront costs, consider gifting them the amount for a down payment, which may allow them to qualify for the loan on their own.
- Offer to help them build their credit score to a place where they could get the loan themselves. For example, you can make them an authorized user on your credit card, which can influence their credit score.
- Some lenders will offer loans to borrowers with poor credit. These loans typically carry unfavorable terms, like high interest rates. Instead of cosigning for a loan, offer to pay a portion of their interest each month on a “bad credit loan” until the borrower’s credit score is strong enough.
If cosigning a loan is the only option left, ask the borrower to sign a written plan that spells out how they’ll make payments on time. Offer to help them create a budget, if it helps.
Budget for the Full Amount Owed on Your Own
Before you sign an agreement, make sure you understand how much you could potentially owe and consider how you’d pay it. Ask the lender how much you could potentially owe, including the loan balance, late fees and interest. Make sure your budget can accommodate both the monthly payment and a full repayment of the loan if there’s an auto-default clause in the contract.
Request Monthly Statements
As the cosigner, you can ask the lender to send a copy of monthly statements to you as well as the primary borrower. You can also request alerts for missed payments and access to the online payment portal. This allows you to stay on top of payments and make them if it is clear the borrow cannot or will not.
How to Remove Yourself as a Cosigner
If you’ve already cosigned a loan, is there a way out? Maybe, but we’ll be honest: It’s unlikely. Consider taking these steps:
1. Request a Cosigner Release
If you desperately want to be removed from a loan as a cosigner, you can request a release form — they’re usually only available with some private student loans and auto loans. However, the primary borrower must sign off on the release form, and the lender must approve it. Those are two tough hurdles to jump through.
If the borrower is enjoying a car that you’ve been making payments on for them, they may not be likely to sign the release form. And if their credit score is still low and the lender deems them to be too risky, the lender will not sign off on the form, even if the borrower has.
2. Refinance or Consolidate the Loan in the Borrower’s Name
The whole point of cosigning for a friend or family member is to help them get on their feet while they build up their own credit. That means, after a few years of responsible payments, they could have the credit score to handle a loan on their own. In that case, you and the borrower could attempt to refinance the loan without your signature.
3. Pay off the Loan
The final step may be the most painful option for you financially. But the reality is, by cosigning a loan, you’ve agreed to the terms of repayment as if it were your own. Losing that money to pay off the balance and any outstanding fees and interest may prove to be a hard financial lesson, but it may be the only realistic way to free yourself of the obligation.
Frequently Asked Questions
Timothy Moore is a market research editing and graphic design manager and a freelance writer covering topics on personal finance, travel, careers, education, pet care and automotive. He has worked in the field since 2012 with publications like The Penny Hoarder, Debt.com, Ladders, WDW Magazine, Glassdoor and The News Wheel. He lives in Ohio. The Penny Hoarder Senior Managing Editor Tiffany Wendeln Connors updated this post for 2026.
