Co-signing a loan can saddle you with some surprising — and unpleasant — consequences.

When a friend or family member asks you to co-sign a loan, it doesn’t seem like a big deal. You’re just helping out a loved one, right?

But co-signing a loan comes with serious, often hidden risks to your finances and your relationships. Here are some things to consider before you agree to lend a hand.

• How does co-signing a loan work?
• Pros and cons of co-signing a loan
• Other risks of co-signing a loan
• Should I co-sign a loan?
• FAQs about co-signing a loan

How does co-signing a loan work?

Your best friend, Bob, is in the market for a loan — a personal loan, car loan, student loan or even a mortgage. Unfortunately, Bob’s having trouble qualifying for a good interest rate or maybe even getting approved. He doesn’t have great credit scores or meet other application criteria, so lenders view Bob as a risky prospect. But, wanting to get approved nonetheless, Bob asks you to co-sign a loan for him.

If you’ve got good credit, adding your name as co-signer alongside Bob’s suddenly makes his application much more attractive to lenders. Now, Bob qualifies for a great loan and happily skips off into the sunset with the money.

But what does co-signing a loan actually mean for you?

When you act as a co-signer, you help another person qualify for a loan that they wouldn’t otherwise be able to get. Obviously, that’s a huge benefit to the other party.

But it also means you have to put your own finances on the line. As a co-signer, you’re not just someone with good credit offering a character reference to a friend with bad credit (or no credit). You’re actually committing to be 100% responsible for that debt if your buddy doesn’t pay.

Pros and cons of co-signing a loan

If you think your role is over after signing on the dotted line, think again. Not only did you just do your friend a favor — you signed up for a brand-new loan with your name on it. In the spirit of friendship, you’ve taken on a significant financial risk and responsibility while your pal gets to enjoy the benefit — a new car, a paid-for education or maybe a wad of hundred-dollar bills. What do you get as a co-signer?

In the spirit of friendship, you’ve taken on a significant financial risk and responsibility while your pal gets to enjoy the benefit — a new car, a paid-for education or maybe a wad of hundred-dollar bills. What do you get as a co-signer?

Benefits of co-signing a loan

• You can help out a friend or family member. Co-signing a loan can greatly help a friend or family member to qualify for a loan that they otherwise may not have been able to qualify for on their own. 
• You can help your friend build credit. If payments are made on time every month, your friend’s credit score is likely to improve — if you already have great credit, the change in your credit score may be minimal.

Consequences of co-signing a loan

• You’re responsible for paying the loan. Surprise! If your friend misses a payment, that’s not just bad on him. It’s your responsibility to cover it out of your pocket … or suffer the consequences.
• The loan appears on your credit reports. You’ll see the new debt on your reports, along with any black marks associated with it — late payments, defaults and missed payments sent to collections.
• It can impact your ability to get a loan for yourself. Taking on any kind of additional debt typically increases your debt-to-income ratio. This doesn’t directly affect your credit scores — however, debt-to-income ratio is a key factor for lenders in evaluating whether to give you credit, and, if so, for what terms.
• Your credit could take a nosedive. If your friend stops paying on the loan and you don’t pick up the slack, the lender will start reporting the missed payments or loan default to the credit bureaus. And that kind of data on your credit reports can tank your once-beautiful scores.
• You’re legally on the line. Since you’re just as legally responsible for the debt as your buddy, the lender may choose to sue you if the loan goes unpaid. Then a court could easily order you to pay 100% of the debt plus legal fees. And recouping any of that cash might mean you’re forced to turn around and sue your friend.
• You’re stuck with the loan. In general, you can’t jump ship on a co-signed loan when things go south. Getting your name off a loan that you’ve committed to pay isn’t a matter of simply erasing your signature. You’re chained to that debt unless your friend qualifies for a refinance, assumes the loan without you as a co-signer or closes the loan.

Other risks of co-signing a loan

Co-signing a loan is a financial minefield. But equally important — if not more important — is the damage that co-signing can do to a relationship.

Even under the best circumstances, when your friend makes every payment on time as promised, the nature of your relationship is fundamentally changed by co-signing. Instead of being equals, your buddy is now indebted to you … and no one likes that feeling. Plus you might feel like you have to keep an eye on your pal’s financial activities to make sure the debt gets paid.

Still worse is what happens when the person you’ve helped fails to make a payment. Suppose your good friend splurges beyond their means on a vacation while you’re forced to cover a monthly payment. It would be natural to feel mounting resentment. Even if he’s having financial troubles that aren’t his fault, you might hate the fact that his money problem has now become your money problem.

Should I co-sign a loan?

In general, co-signing a loan is risky on both a financial and a personal level. But saying no to a loved one in need can feel downright mean. After all, you want to help your daughter qualify for a college loan or help your best friend get a car that will get him to and from work.

If you ultimately resolve not to co-sign, share your decision from a place of love and respect. Educate your loved one on the responsibilities you’d be taking on by co-signing a loan — many people don’t realize the extent of risk they’re asking you to assume with your own finances. And be prepared for the other person to express disappointment. If possible, approach the conversation with some alternatives to co-signing — a website with info on college grants or easy-approval loan options.

If you do decide to co-sign, there are some things you can do to try to protect your own finances, and your relationship, as much as possible. Here are a few.

• Get online account access so that you can view statements without nagging your friend.
• Have the lender notify you immediately if payments are overdue.
• Plan for the worst by setting aside money to cover any missed loan payments.
• Don’t co-sign for someone who you know is irresponsible with money or for a person you’ve only recently met.
• Communicate regularly with the other person about the status of the loan.

Finally, if you co-sign, consider thinking about the loan as a monetary gift. Then, getting repaid is a bonus — not a requirement. And you’ll spare your relationship the pressure of money woes.

FAQs about co-signing a loan

This offer is no longer available on our site: Petal® 1 Visa® Credit Card

Updated October 20, 2022

This date may not reflect recent changes in individual terms.

Editorial Note: Intuit Credit Karma receives compensation from third-party advertisers, but that doesn’t affect our editors’ opinions. Our third-party advertisers don’t review, approve or endorse our editorial content. Information about financial products not offered on Credit Karma is collected independently. Our content is accurate to the best of our knowledge when posted.

Written by: Megan Nye

Pros

• No annual fee
• Earn 1 rewards point for every $1 spent at JCPenney or jcp.com
• $10 in JCPenney Rewards for every 200 points you earn
• Tons of ways to exclusively save at JCPenney

Cons

• High purchase APR
• Reward points don’t expire as long as you earn points at least once every 12 months
• Rewards certificates expire within a few months
• Card can only be used at JCPenney and affiliated stores

What you need to know about the JCPenney Credit Card

The JCPenney Credit Card, issued by Synchrony Bank, could be a compelling option for fans of department store credit cards. Here’s what to know before you apply.

Straightforward points for your purchases

When you pay for your in-store or online qualifying JCPenney® purchase with your JCPenney Credit Card, you receive one point for every $1 you spend. Plus, purchase exclusions for earning rewards are minimal.

Automatic rewards

When your account hits a balance of 200 rewards points, you’ll automatically be sent a $10 JCPenney Rewards certificate that you can use toward eligible purchases at JCPenney. That works out to a rewards rate of 5%, which is pretty nice. And rewards certificates should be available electronically within 24 hours of reaching the magic 200-point mark.

Unlimited rewards that you can stack

There’s no limit to the number of JCPenney Rewards certificates you can earn. Plus you can redeem up to 10 JCPenney Rewards certificates — that’s up to $100 in rewards — on a single purchase in store or online.

Points that never expire (as long as you keep spending)

Your rewards points will stay with you if you keep your JCPenney Rewards membership active by earning points at least once every 12 months.

Exclusive deals

Eligible JCPenney Rewards members will receive notification of members-only offers such as bonus points opportunities, coupons and even a special birthday offer.

What else you should know about the JCPenney Credit Card

The JCPenney Credit Card isn’t without its drawbacks. Watch out for these not-so-great features.

• High purchase APR: This card comes with an interest rate that’s no joke — 25.99%. If your balance carries over month to month, your interest due could be astronomical.
• Cap on your transactional earnings: If you’re hoping to rake in the rewards on a huge single purchase, think again. You’re limited to 2,000 Rewards Points per transaction, regardless of the price of your purchase.
• Ticking clock on rewards certificates: Your points may not expire while your account is active, but those $10 rewards certificates don’t last as long. Note the expiration date on each certificate you have — and be sure to use your rewards certificates before that date.

Who this card is good for

As with most store cards, there’s zero benefit to carrying this one if you’re not a regular shopper at JCPenney. And if you tend to carry a balance from one month into the next, you could wind up paying more in crazy-high interest rates — considering the card’s 25.99% purchase APR — than you recoup in rewards.

But JCPenney fans can enjoy the deluge of special deals and the 5% year-round store rewards rate. With many savings events for card members only, the JCPenney Credit Card rewards shoppers who can’t stay away.

(Bonus tip: Hold off on making a purchase until one of those savings events comes along. You probably won’t have to wait too long.)

Want more rewards? How to get the JCPenney® Gold Card and JCPenney Platinum Card

Like other retailers, JCPenney offers a tiered rewards system for its cardholders.

When your spending on the JCPenney Credit Card for the calendar year hits $500 in purchases at JCPenney stores and online, you’ll be upgraded to the JCPenney Gold Card, though that level gives you little more than a special JCPenney coupon book. You’ll have to keep your annual spending on the card at $500 or more on qualifying purchases to maintain Gold status.

Once your calendar-year spending on the JCPenney Credit Card hits $1,000-plus in purchases at JCPenney stores and online, JCPenney bumps you up to its Platinum Card. Extra perks include special sales available only to Platinum members. You’ll have to keep your annual spending at $1,000 or more on qualifying purchases to maintain Platinum status.

Not sure this is the card for you? Consider these alternatives.

• Citi Double Cash® Card: Consider this card if you’re looking for a strong cash-back rate on every purchase you make.
• Petal® 1 Visa® Credit Card: This is a decent starter card with no annual fee — and the opportunity to earn cash back on some purchases.
• Discover it® Cash Back: This card is a good option for earning cash back wherever you shop.

This offer is no longer available on our site: Petal® 1 Visa® Credit Card

Are you a Maxxinista?

You know you are if you’re always on the hunt for style and a great deal at T.J. Maxx, a major player in the discount department store market. And if you are a frequent shopper at the popular discount store or its sister stores, you may be wondering if a T.J. Maxx® store credit card is right for you.

Store loyalists can apply for the TJX Rewards® credit cards offered through Synchrony Bank that allow you to earn rewards at the TJX family stores, including T.J. Maxx, Marshalls, HomeGoods, Homesense and Sierra.

If you’re interested in taking your relationship with T.J. Maxx and TJX stores to the next level, you might want to consider the TJX Rewards® Credit Card or TJX Rewards® Platinum Mastercard®. But which card is better? Read on to get our take.

At a glance: TJX Rewards® Credit Card vs. TJX Rewards® Platinum Mastercard®

1. The winner: Why we prefer the TJX Rewards® Platinum Mastercard®
2. Counterpoint: Why you might want the TJX Rewards® credit card instead
3. Heads up: What to consider when applying for a TJX Rewards®
4. Bottom line: Is a TJX Rewards® credit card right for you?

The winner: Why we prefer the TJX Rewards® Platinum Mastercard®

Simply put, the TJX Rewards® Platinum Mastercard® gives you everything the TJX Rewards® Credit Card includes and more. With both cards, you earn identical rewards from the TJX family of stores and operate under the same variable purchase APR.

But while the TJX Rewards® Credit Card can only be used in TJX stores, the TJX Rewards® Platinum Mastercard® gives you the freedom of a globally accepted credit card (and without foreign transaction fees). With the platinum card in your wallet, you can swipe anywhere Mastercard is accepted. Plus, the card may come with some additional perks and protections afforded to certain Mastercard holders.

Plus, in addition to earning 5% rewards for every TJX purchase you make with either TJX Rewards® card, your TJX Rewards® Platinum Mastercard® can earn you 1% on every non-TJX purchase you make with your card. And there’s no limit to the number of rewards points you can rack up on your card.

Counterpoint: Why you might want the TJX Rewards® Credit Card instead

If you qualify for the TJX Rewards® Platinum Mastercard®, why would you want to downgrade to the TJX Rewards® Credit Card? After all, if you want a card you can use to earn store rewards at your favorite TJX retailers, both cards accomplish that goal equally well.

But what if you’re worried that you’ll use your plastic to spend unwisely at other retailers? Getting the TJX Rewards® Credit Card instead could be a way to keep your impulses in check. You can’t make purchases at non-TJX stores with your TJX Rewards® Credit Card even if you want to, which could help curb your spending.

Heads up: What to consider when applying for a TJX Rewards® card

If you decide to apply for a TJX Rewards® card, you’ll notice right away that there’s no option for choosing the specific TJX Rewards® card you want to apply for. In fact, which card you receive isn’t up to you at all.

If your application qualifies you for the TJX Rewards® Platinum Mastercard®, that’s the one you’ll get. And you’ll be considered for the TJX Rewards® Credit Card if you’re not approved for the platinum card. As a result, it’s possible that you’ll receive the TJX Rewards® Credit Card even if what you really want is the more versatile TJX Rewards® Platinum Mastercard®.

And, as with many retail credit cards, both TJX Rewards® cards come with higher APRs than the national average. So if you plan to get one of them, make sure you can avoid carrying a balance month-to-month to avoid high interest fees.

Bottom line: Is a TJX Rewards® credit card right for you?

If you’re a regular shopper at the TJX family of stores, it could be worth taking a look at each of the TJX Rewards® cards. Both cards allow you to earn five points for every $1 you spend at a TJX store every day of the year — a rarity in the world of rewards cards. But it’s important to remember that your rewards can’t be converted into cash. So if you don’t visit the TJX stores often, you may find yourself sitting on unused rewards or unredeemed points.

Plus, while the TJX Rewards® Platinum Mastercard® does let you earn points for non-TJX purchases, the one-point-per-$1 rewards rate isn’t the best out there. So if your aim is to maximize your overall rewards, we recommend you consider one of our favorite cash back rewards cards (see some of our picks below).

Finally, there’s no getting around the massive APR that’s attached to both TJX Rewards® cards. If you do choose to carry a TJX Rewards® card, make sure you’re prepared to pay your balance in full and on time every month to avoid costly interest fees. Otherwise, you may find that the sky-high interest rate quickly surpasses your rewards (and then some).

Not sure either card is for you? Consider these alternatives.

• Citi Double Cash® Card: Consider this card if you’re looking for a strong cash-back rate on every purchase you make.
• Petal® 1 Visa® Credit Card: This is a decent starter card with no annual fee — and the opportunity to earn cash back on some purchases.
• Discover it® Cash Back: This card is a good option for earning cash back wherever you shop.

Are you trapped in a debt spiral of mounting credit card debt, high interest rates and a minimum monthly payment that’s becoming difficult to meet?

If you are, you might be feeling frightened or overwhelmed. But your credit card company likely offers an unadvertised program that could make all the difference.

A hardship plan, also known as a credit card payment plan, is a well-kept secret that has the potential to save you big bucks in interest, reduce your monthly financial burden and finally let you break free of your debt spiral.

Think a payment plan might be right for your financial situation? Let’s dive in to what a hardship plan is (and isn’t) and how it might impact your credit in unexpected ways.

• What is a hardship plan?
• Possible downsides of a hardship plan
• How could your credit improve?

What is a hardship plan?

A hardship plan is not the same as the debt management plans you see advertised on TV.

With a debt management plan, you work with a credit counselor who acts as the liaison between you and all your unsecured debt creditors. Typically for a fee, the counseling agency analyzes your income and spending, negotiates debt repayment terms with each of your lenders and pays all of them with a single monthly payment it collects from you.

With a hardship plan, however, there’s no intermediary and no mass payment of lenders. Instead, you work directly with your credit card issuer and participate in its unique repayment program. Many creditors do offer hardship plans, though you’ll rarely find them advertised.

“Each creditor’s policy is a little bit different,” says Thomas Nitzsche, credit educator and communications lead at Clearpoint, a nonprofit credit counseling agency. He notes that plans typically offer a combination of the following benefits:

• A lower interest rate
• A smaller minimum payment
• Lower fees and penalties
• A fixed payment schedule

When you’re facing a temporary financial rough patch — a recent job loss, medical emergency or serious accident, for example — Nitzsche says that calling your creditor and telling your story may persuade the company to offer you the money-saving perks of a payment plan.

Possible downsides of a hardship plan

The act itself of signing up for a hardship plan has no effect on your credit. However, once you enroll, your credit scores could be indirectly affected because of the way the program works.

First, your credit card issuer may put a note on your credit reports regarding your participation in its hardship plan. So while the note signals that you’re taking positive steps to responsibly repay your lenders, it could make potential creditors nervous about your financial situation. Before you sign up for a payment plan, talk with your issuer about what note (if any) will be sent to the credit bureaus.

Second, while you’re participating in a hardship program, your card company may close or suspend your account until your payment schedule is complete. And closing a credit card — whether you do it yourself or your card company does it for you — can hurt your credit scores by affecting a few different things:

• Credit utilization ratio: Your credit utilization ratio represents the portion of your available credit that you actually use, and it accounts for a whopping 30 percent of your FICO® score. In general, your scores can increase as you use less of your total credit limit. So, when you shut down a card, you eliminate some of that available credit. And if you don’t decrease your credit card spending, your scores will drop to reflect the increase in your utilization ratio.
• Length of credit history: Your credit scores reward you for having mature lines of credit. In fact, 15 percent of your FICO® score depends upon the length of your credit history. So if your creditor closes one of your older cards when putting you on a payment plan, your average credit age will decrease, and your scores could go down as a result.
• Credit mix: FICO® rewards you for having a desirable combination of credit cards, mortgages, car payments and other types of loans. This combination — or credit mix — makes up about 10 percent of your FICO® score. When you close a card, your credit mixture changes, and that could affect your scores.

That said, participating in a hardship plan could actually benefit your credit scores in the long run.

How could your credit improve?

After you sign up for a hardship plan, you might see a concerning dip in your credit scores. This typically isn’t permanent, though it could take months of on-time payments and responsible behavior to get your credit back to where you’d like it.

If you successfully complete your program, that initial dip could transform into a sizable credit score increase. Here’s why:

If you’re thinking about signing up for a hardship program, you may have already missed some minimum payments on one or more of your cards. Payment history is the No. 1 factor in determining your FICO® score, making up 35 percent of the score. So you may have already seen your credit scores decline after missing payments.

Fortunately, sticking to a hardship plan’s payment schedule is an excellent way to rebuild your history of timely debt repayment. Your lender, who reported those late payments to the credit bureaus, will now report your consistent, on-time payments — which can mean good news for your scores.

Bottom line

So, is a hardship plan right for you?

They’re not right for everybody, Nitzsche says.

“If you’re somebody who struggles with being organized, if you have multiple creditors, if you’re intimidated by contacting all of them directly, or if the thought of managing all those individual payments each month is daunting,” he says, “it might behoove you to see a credit counselor and consider debt management.”

Just be aware that dealing with debt settlement companies can be risky, according to the Consumer Financial Protection Bureau, and might leave you deeper in debt than when you started. The CFPB recommends seeking out a nonprofit consumer credit counseling service as an alternative or speaking with a bankruptcy attorney if you’re considering that route.

If, however, you’re facing a temporary financial crisis or a relatively minor problem with just a few cards, your card issuer may be willing to extend concessions when it comes to repaying. So pick up the phone, call up your creditor and make your case. It could be the turning point in conquering your credit card debt.