What is a co-signer?
A co-signer is someone who agrees to take legal responsibility for loan payments if the primary borrower fails to pay.
If a co-signer’s credit history is strong, it could help a borrower get approval for a loan. Their creditworthiness could also mean more favorable terms than the borrower might have qualified for on their own.
But there are a few important things to know if you’re the primary borrower or co-signer.
What you’ll learn:
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A co-signer supports a borrower who might need help qualifying for a loan. Co-signers are most often added to mortgages, personal loans, auto loans and student loans.
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Co-signers agree to take the same responsibility as borrowers in a loan agreement but are legally obligated to take over any payments borrowers miss.
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A co-signer agreement can affect the borrower’s and the co-signer’s credit—positively or negatively—depending on how repayment is handled.
- Capital One, along with most major credit card issuers, doesn’t allow co-signers. However, there may be other options, like becoming an authorized user on a family member’s or friend’s account.
What does it mean to be a co-signer?
When someone co-signs a loan, they take on the same account responsibility as the primary borrower. They also accept legal responsibility to pay for the loan if the borrower misses payments or defaults on the loan. This is all to help assure the lender that the loan will be repaid.
But co-signers don’t have ownership rights to the funds provided by the loan or any properties the loan is for.
When would you need a co-signer?
When someone has lower credit scores or a high debt-to-income (DTI) ratio, it might be harder to qualify for loans. But having a co-signer with a positive credit history could make it easier. And a co-signer can sometimes help secure better loan terms and lower interest rates, too.
Co-signers might be an option when it comes to mortgage loans, auto loans, personal loans, student loans and some credit cards. But most major credit card issuers, including Capital One, don’t allow co-signers on credit cards.
Becoming an authorized user is another option that might be worth exploring if you need help getting a credit card.
Considerations before asking someone to be a co-signer
Co-signing puts responsibility and financial risk on the co-signer. And even if someone co-signs on your loan, it’s still important to keep up with payments and understand the terms of the loan. Things like late or missed payments can damage not only your credit but also your co-signer’s.
Responsibilities of a co-signer
If the primary borrower is unable to make a monthly payment on their loan, the co-signer is legally responsible for covering the payment. If the borrower stops making loan payments altogether, the co-signer agrees to take over the repayment of the loan.
It’s also helpful to know that the loan account could appear on the co-signer’s credit reports, as well as on the borrower’s.
Pros and cons of co-signing a loan
Being a co-signer comes with financial obligations, but that doesn’t mean it can’t be a positive if the loan is used responsibly.
Pros of co-signing
Here are some potential positives to being a co-signer:
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It could improve your credit. If the loan appears on your credit report and there’s a record of things like on-time payments, being a co-signer can have a positive impact on your credit.
- You can help a loved one. Whether it’s a friend or family member, being a co-signer lets you help someone access credit or loans they may not have been able to on their own.
Cons of co-signing
There are also some potential risks to consider for co-signers:
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You’re responsible for unpaid debt. If the borrower misses a payment, you’ll become responsible for it. And if the borrower stops paying altogether, you may be on the hook for repaying the full loan amount.
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It could hurt your credit. Any negative information reported to credit bureaus could show up on your credit reports. Examples might include late payments or debts sent to collections.
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It could impact future borrowing. Becoming a co-signer could change your DTI ratio and credit utilization, which are two factors that might affect other loan approvals or terms in the future.
- It could affect your relationship with the borrower. Shared financial responsibility can cause stress. And when you co-sign a loan, you’ll be financially tied to the borrower for the life of the loan—even if your relationship changes during that time.
Co-signer FAQ
Still have questions about co-signing? These frequently asked questions might help.
Can anyone be a co-signer?
Lenders technically can’t set rules for who can be a co-signer in terms of their relationship to the borrower. But a co-signer’s credit scores and personal finances generally might need to be in good shape to have the best shot at being approved.
What’s the difference between a co-signer and a co-borrower?
A co-signer is responsible for making payments if the borrower is unable to. But co-signers don’t have legal access to the property or money from the loan.
Co-borrowers share payment responsibilities too, but they also have equal rights to any properties or money tied to the loan in question.
What is a co-signer for an apartment?
Even though renting an apartment doesn’t involve taking out a loan, landlords and property owners might still have credit or income requirements for applicants. If a renter doesn’t meet those requirements, they might need a co-signer on the lease for the landlord to rent to them.
How do I protect myself as a co-signer?
Before co-signing on a loan, here are a few things you could do to help give yourself peace of mind:
- Have the borrower make a budget that shows they can afford the monthly payments.
- Ask the borrower to keep you updated on their payments.
- Request that the lender send you statements or notify you of missed or late payments.
- Make sure you have copies of all important loan documents.
- Monitor your credit reports regularly for missed payments or errors.
When it comes to keeping an eye on your credit reports, you can use a free tool like CreditWise from Capital One. It lets you check your credit for free whenever you want whether you’re a Capital One cardholder or not. You can also request free copies of your credit reports at AnnualCreditReport.com.
Key takeaways: Co-signers
If you decide to co-sign a loan, it’s important for both you and the other person to be aware of what it entails. While a co-signer can help a borrower get a loan with more favorable terms, the co-signer has the same financial responsibility to repay the loan as the borrower.
If you’re planning to apply for a credit card but are unsure of what you might be approved for without a co-signer, it may be worthwhile to consider getting pre-approved. That way, you can get a clearer sense of your credit card options before applying. There are several fair and building credit cards at Capital One that make great options for those working on their credit.
