What Is a Co-Signer and How It Works

Key takeaways:

• Borrowers may ask a person they trust to co-sign a loan due to low credit scores or a lack of credit history.
• When a person applies for a loan, they may have an option to add a co-signer or a co-borrower.
• If a primary borrower defaults on their loan payment and the co-signer doesn’t pick up the slack, it could negatively impact the co-signer’s credit score.

Co-Signer Definition: A co-signer is a person who signs a loan agreement alongside the borrower and is legally responsible for repaying the loan; lenders often use co-signers to reduce underwriting risk, though individual qualification standards vary.

If you have a low credit score or no credit at all, finding a lender that’ll approve you for a loan may be tough. However, adding a co-signer to your personal loan may help. 

A co-signer is a person with good credit that agrees to repay your debt if you default on a loan.

Asking someone to be your co-signer shouldn’t be taken lightly. By agreeing to co-sign your loan, they take on all the rights and responsibilities of a loan along with you, the borrower. If you miss a payment or default, you may damage their credit. 

Before you ask someone to co-sign, learn about what a co-signer is, how it works, and their rights, so you can properly inform them.

What is a Co-signer?

A co-signer is someone that applies for a loan with another person and legally agrees to take responsibility for payments if the primary borrower is unable to. Co-signers may be a trusted friend or family member that has a decent credit score and steady income. 

They can be used for a variety of loan types including auto, home, personal, debt consolidation, and auto refinance loans. Having a co-signer can possibly help a borrower qualify for a loan with more favorable terms than they may otherwise be eligible for.

Important disclosure: Upstart does not currently support co-signers or co-borrowers. The information is educational and may apply when you work with other lenders.

What are the requirements for a Co-signer

Lenders typically look for co-signers who demonstrate strong and stable financial profiles. While specific requirements vary, most lenders evaluate co-signers using similar criteria as the primary borrower, since the co-signer is equally responsible for the loan.

Common factors include:

• Credit score: Lenders generally prefer co-signers with good to excellent credit, as a stronger credit profile can improve the likelihood of approval and help secure better terms
• Debt-to-income (DTI) ratio: A lower DTI (generally below 50%) indicates the co-signer has sufficient income relative to existing debt obligations
• Stable income: Proof of consistent employment or reliable income to demonstrate the ability to repay the loan if needed
• Credit history: A track record of responsible credit use, including on-time payments and no recent bankruptcies or major delinquencies

Because the co-signer is legally responsible for the loan, lenders assess whether they could reasonably take over payments if the primary borrower is unable to do so.

When should you consider a co-signer?

A co-signer may be worth considering if your current financial profile makes it difficult to qualify for a loan on your own or to secure favorable terms. Because a co-signer adds another layer of creditworthiness to the application, they can help reduce the lender’s perceived risk.

You might consider a co-signer in situations such as:

• Your credit score is below the lender’s typical requirements: If your score is on the lower end, a co-signer with stronger credit may improve your chances of approval
• You have limited or no credit history: Thin credit files can make it harder for lenders to assess risk, even if your income is stable
• You’ve been denied a loan on your own: A prior denial often indicates gaps in your credit profile that a co-signer could help offset
• You’re looking to qualify for better terms: A stronger combined application may result in a lower interest rate or higher loan amount
• Your income history is limited or inconsistent: This is common for students, recent graduates, or those early in their careers

Co-signer vs. co-borrower: the differences

If you need a little extra help qualifying for a loan with favorable terms, you can get help from two types of parties: a co-signer or a co-borrower. Both of these backups would be legally responsible for the debt you take out. 

The biggest difference between a co-borrower and co-signer is the amount of investment each has in the loan. 

A co-borrower has more responsibility and ownership than a co-signer because a co-borrower’s name is on the loan, and they’re expected to make payments. You can see some of the key similarities and differences between them in the table below:

Co-signer	Co-borrower
Has no ownership of the property that the funds are for	Are on the title and have some claim to the property that the funds are for
Is legally obligated to repay the loan if the primary borrower defaults	Splits the repayment obligation equally with the primary signer
Must have their income, assets, credit score, and debt-to-income ratio considered in the application	Must have their income, assets, credit score, and debt-to-income ratio considered in the application

Pros and cons of having a co-signer

Adding a co-signer to a loan can strengthen your application, but it also introduces shared financial responsibility. It’s important for both parties to understand the potential benefits and risks before moving forward.

Pros:

• May improves approval odds: A co-signer with a stronger credit profile can help offset weaknesses in your application, such as a lower credit score or limited credit history
• May result in better loan terms: Lenders may offer a lower interest rate or more favorable terms when there is less perceived risk
• May help build credit history: If payments are made on time, both the borrower and co-signer may benefit from positive credit reporting
• May access to higher loan amounts: A stronger combined financial profile may increase the amount you’re eligible to borrow

Cons:

• Shared financial liability: The co-signer is equally responsible for the loan. If payments are missed or the loan goes into default, it can negatively affect both parties’ credit
• Potential strain on relationships: Financial obligations can create tension, especially if repayment issues arise
• No ownership rights: In most cases, a co-signer does not have any claim to the asset or funds associated with the loan
• Impact on the co-signer’s borrowing ability: The loan is included in the co-signer’s debt-to-income ratio, which may limit their ability to take on additional credit
• Difficult to remove the co-signer: Releasing a co-signer typically requires refinancing or meeting specific lender conditions, which may not be easy to achieve

What is a co-signer responsible for?

If you’re thinking about asking someone to co-sign a loan with you or becoming a co-signer yourself, you need to understand what responsibilities a co-signer has.

Paying back debt

Financial responsibility is an important duty a co-signer can have. Even though the primary borrower should be making the monthly loan payments, that doesn’t mean they will. 

If the borrower defaults, the co-signer is legally obligated to pay whatever the borrower has missed. Depending on how many payments a borrower misses, a co-signer may also owe penalties, late fees, and extra interest.

Gather the right information to apply

Lenders commonly use credit scores and history to see if the people who are applying for a loan are financially reliable and responsible. To show they can be trusted, a co-signer needs to gather and submit several key pieces of information and documentation to qualify. Some of these details include:

• Credit history
• Credit score
• Income
• Debts
• Employment 

Co-signer rights

When a person co-signs a loan, credit card, or rental agreement, they take on a legal obligation to make payments if the primary borrower can’t or doesn’t follow through. Before committing to a loan application, consider what rights a co-signer is entitled to.

• Property ownership: Being a co-signer doesn’t entitle a person to anything that the loan funds are being used for.
• Collections: When a person becomes a co-signer, they’re responsible for any loan amount left unpaid, which means they could face collections. According to the Federal Trade Commission, a co-signer may be contacted by collections for the loan amount before the primary borrower.
• Loan name removal: Depending on the lender being used, primary borrowers can release a co-signer from a loan with a co-signer release form. In addition to the release form, the primary borrower must show that they’re able to handle the payments.

Does being a co-signer affect your credit?

Becoming a co-signer may impact a person’s credit score slightly, especially if the loan provider performs a hard credit inquiry. A hard credit inquiry will appear on a co-signer’s credit report and may lower their score slightly.

Any debt that a co-signer takes on will also appear on their credit report, along with any issues associated with it.

Potential positive impacts:

• On-time payments may support your credit profile: If the loan is paid as agreed, the positive payment history is reflected on both the borrower’s and co-signer’s credit reports
• Adds to credit mix and history: For some individuals—especially those with limited credit—an additional account in good standing may contribute to a stronger overall profile over time

Potential negative impacts:

• Late payments affect both parties: Any missed payment is reported on both the borrower’s and co-signer’s credit reports and can significantly lower credit scores, especially for those with otherwise strong credit
• Delinquencies remain on your credit report: Late payments (30, 60, or 90+ days past due) can stay on your credit report for up to seven years
• Default or collections risk: If the loan goes into default, the co-signer may be responsible for the full balance, and the account may be sent to collections, causing substantial credit damage
• Higher debt-to-income (DTI) ratio: The co-signed loan is included in your debt obligations, which may affect your ability to qualify for additional credit

Because the co-signer shares full responsibility for the loan, even a single missed payment can have lasting financial consequences.

Co-signers: the bottom line

Deciding to become a co-signer is a big financial decision, it’s not something that should be done impulsively. Becoming a co-signer may impact a person’s credit score and their financial situation for many years. 

Before you ask someone to be a co-signer or decide to become one, consider the full scope of the liabilities and risks.