When you take out a loan with a co-signer, your responsibilities and the impact on the co-signer are as follows:
Your Responsibility as the Primary Borrower
- You are primarily responsible for making all loan payments on time according to the loan agreement.
- If you fail to make payments or default on the loan, the co-signer is legally obligated to repay the loan.
- Late or missed payments will negatively affect both your credit score and the co-signer’s credit score
Co-Signer’s Responsibility and Impact
- A co-signer agrees to take on equal legal responsibility for the loan. If you miss payments or default, the lender can require the co-signer to make payments instead of pursuing you first
- The loan appears on the co-signer’s credit report, affecting their credit utilization and debt-to-income ratios, which can reduce their ability to borrow in the future even though they do not own the loan funds or assets
- The co-signer has no ownership rights to the loan proceeds or collateral (e.g., the car or house purchased with the loan), meaning they bear financial risk without ownership benefits
- If the loan goes into default, the co-signer may face collection actions or lawsuits from lenders or debt collectors
- Co-signers typically need strong credit to qualify and should carefully consider their financial ability to cover the loan if needed
Summary
- You must repay the loan as agreed.
- The co-signer is equally responsible for repayment if you fail.
- Both your and the co-signer’s credit scores are affected by payment history.
- The co-signer assumes financial risk without ownership rights.
- Co-signing can help you qualify or get better loan terms but places significant risk on the co-signer
This arrangement means you should communicate clearly with your co-signer about your ability to repay and understand the full implications for both parties before proceeding.
