What Should I Consider Before Co-signing a Loan?

We generally make money when you get a product (like a credit card or loan) through our platform, but we don’t let that cloud our editorial opinions. Learn more about how we keep this compensation from affecting our editorial views.

What Should I Consider Before Co-signing a Loan?

By NAZHAT SALIM

Some people fear spiders, some are scared of the dark, and then there are those who shiver at the thought of co-signing a loan. But co-signing a loan is a lot less scary if you know what you're getting yourself into.

It's important to know what it means when you co-sign a loan. Typically, people co-sign loans for children going to college who don't have their own credit history, or for close relatives or friends who need a helping hand. When you agree to co-sign their loan, you are agreeing to pay the debt if the borrower does not. Basically, it's as if you're taking on a new loan for yourself, and this can significantly impact your financial well-being.

The first factor to consider is whether you can afford to pay the loan if the borrower does not. If you're asked to pay and can't, you could be sued and have your credit ruined. The loan will appear on your credit report, much like any other debt. If a payment is late, for instance, that derogatory mark will appear on your credit report, lowering your credit score. This can happen before you have any idea that there is a problem, as the co-signer often doesn't receive a monthly billing statement. Even if you're not asked to repay the debt, the loan may prevent you from getting other forms of credit since creditors will consider the co-signed loan as one of your obligations.

The second factor to consider is whether the borrower is reliable and able to make payments on their own. If they default on the loan, you may have to pay the full amount of the debt, late fees and collection costs. Moreover, depending on state laws, the creditor can collect the debt from you without first trying to collect from the borrower.

You can protect yourself by taking some precautions. You can ask the creditor to negotiate the specific terms of your obligation and limit your liability to just the principal -- the amount borrowed before interest -- on the loan. Then, you wouldn't be responsible for collections or late fees. Also, you can ask the creditor to notify you by mail if the borrower misses a payment or the terms on the loan change. It is also a good idea to get copies of important documents such as the contract, disclosure statement and warranty.

Ultimately, if you feel secure about both your finances and the borrower, co-signing a loan can be your chance to help someone else get started down the path to good credit. Share the good feelings, not the fear!

About the Author: is a Member Support Specialist at Credit Karma. She spends her free time reading, devouring desserts and talking to her slightly deaf cat, Pusho. When she's not doing those things, she is dreaming about doing them.

Editorial Note: The opinions you read here come from our editorial team. While compensation may affect which companies we write about and products we review, our marketing partners don't review, approve or endorse our editorial content. Our content is accurate (to the best of our knowledge) when we initially post it, but we don't guarantee the accuracy or completeness of the information provided. You can visit the company's website to get complete details about a product. See an error in an article? Use this form to report it to our editorial team. For questions about your Credit Karma account, please submit a help request to our support team.

Advertiser Disclosure: We think it's important for you to understand how we make money. It's pretty simple, actually. The offers for financial products you see on our platform come from companies who pay us. The money we make helps us give you access to free credit scores and reports and helps us create our other great tools and educational materials.

Compensation may factor into how and where products appear on our platform (and in what order). But since we generally make money when you find an offer you like and get, we try to show you offers we think are a good match for you. That's why we provide features like your Approval Odds and savings estimates.

Of course, the offers on our platform don't represent all financial products out there, but our goal is to show you as many great options as we can.

All Comments

Result 1-1 of 1Results per page: 5 | 10 | 25Page 1 of 1   Previous | Next
8 Contributions
50 People Helped

Helpful to 3 out of 6 people

Never co-sign a loan! Never! Never! Never! It ruins relationships. I've never did it but I've heard enough stories about it on Dave Ramsey to know it ruins relationships! Never do it! You end up pays the persons debt. Don't ever get yourself into that situation.

Result 1-1 of 1Results per page: 5 | 10 | 25Page 1 of 1   Previous | Next

Your Credit Scores Should Be Free. And Now They Are.

View your scores and reports anytime.

SIGN UP NOW

Comment on this Article

Write your comment:
Enter Your Comments