What is a Cosigner?

A cosigner is a person who signs for a loan or other debt on behalf of another. When a cosigner agrees to this action, he or she takes on the legal obligation for the debt, should a default occur.

When Is A Cosigner Needed?

Using a cosigner to vouch for the borrowing party is a fairly common practice. A cosigner might be needed if:

  • A person does not have credit – It is not uncommon for parents to cosign on automobile loans, apartment leases and other obligations for their children when they are first starting out.
     
  • Low income – When a person’s income is in question, a cosigner might help give lenders assurances that a loan will be repaid.
     
  • Bad credit is an issue – A cosigner can help a person with bad credit overcome this issue and even obtain better standing in regard to interest rate offers and down payment requirements. The exact terms offered, even with a cosigner, will vary based on the loan applied for and the lender involved.

Risks For A Cosigner

Serving as a cosigner can be very helpful for the person trying to take out a loan or obtain a lease, but it can pose a risk for the signer. When a cosigner agrees to this action, they may face having to take on the full payments if the borrower defaults. This, in turn, can have a negative impact on their credit standing.


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