Cosigner

What It Means

A cosigner is someone who signs a loan with the main borrower and agrees to repay it if the borrower doesn't. Lenders ask for one when the borrower's credit or income isn't enough on its own, which the CFPB says private student lenders typically do. The cosigner usually gets none of the money or the car, but carries the same debt: the lender can collect the full amount, plus late feesLate feeA charge added when a payment arrives after its due date, set by the card agreement, lease or contract and limited by federal or state rules. See more or collection costs, from the cosigner.

How People Say It

• "My mom cosigned my first car loan."
• "The bank won't approve me without a cosigner."
• "I'm not cosigning for anybody ever again."

The Breakdown

An example family. Rosa cosigns a $15,000 private student loanPrivate student loanA student loan from a bank or other private lender, priced by your credit and governed by its contract rather than federal student loan rules. See more for her nephew. He graduates, pays for a year, then loses his job and stops. The lender doesn't chase him first; it calls Rosa and asks her to bring the loan current, plus the late fees. Her own credit reportCredit reportA record of how you've borrowed and repaid, kept by credit bureaus and sold to lenders, landlords, insurers and others who decide whether to deal with you. See more now shows the late paymentsLate paymentA payment that reaches the lender after its due date; on credit reports, one that's 30 days or more past due. See more, right as she applies to refinanceRefinancingReplacing a loan you already have with a new one, usually to get a lower rate, a different term or a different payment. See more her mortgageMortgageA loan used to buy or refinance a home, secured by the home itself and repaid in monthly installments over a set term. See more.

Where it goes wrong. Rosa thought of cosigning as a character reference. Legally it was a promise to pay. She also had no way of knowing the payments had stopped until the lender called, and by then the account was already behind.

What to watch for.

• The Notice to Cosigner. The FTC says the lender must give it to you by law, and it spells out the risk in plain words.
• Whether the lender offers cosigner release. According to the CFPB, some private student lenders do after a run of on-time payments and a credit check of the borrower.
• A way to watch the account, such as online access, so you hear about a missed payment early.
• Your own budgetBudgetA plan for a set period, usually a month, that lists the money you expect to receive and how you'll spend or save it. See more. A loan you cosign is your debt too, so plan as if you might make the payments.

Good to Know

The FTC's Credit Practices Rule sets the wording of the Notice to Cosigner. It tells you that you may have to pay up to the full amount of the debt, that late fees or collection costs can raise it, and that the creditor can collect from you without first trying to collect from the borrower. The FTC's business guidance adds that the notice should be in the same language as the loan agreement. Cosigning a credit card is rare now; Experian notes most major issuers no longer allow it, and adding someone as an authorized userAuthorized userA person the cardholder lets carry and use a card on their credit card account, without being legally responsible for the bill. See more works differently.

Related Terms and Categories

• Private student loan

  A student loan from a bank or other private lender, priced by your credit and governed by its contract rather than federal student loan rules.

• Car loan

  An installment loan used to buy a vehicle, repaid in monthly payments over a set term, with the vehicle as collateral.

• Authorized user

  A person the cardholder lets carry and use a card on their credit card account, without being legally responsible for the bill.

• Credit report

  A record of how you've borrowed and repaid, kept by credit bureaus and sold to lenders, landlords, insurers and others who decide whether to deal with you.

• Loan default

  Failing to repay a loan as the contract requires, usually after missed payments, which lets the lender use stronger ways to collect.

• Joint account

  A bank or credit union account owned by two or more people, each of whom can usually deposit, withdraw, move money or close it.

Debt and credit