Cosigner Responsibilities

by Hans Fredrick ; Updated July 27, 2017
When you co-sign a loan, you put yourself at a certain amount of financial risk.

When a person takes an action that requires good credit, such as securing a loan, buying a car or renting an apartment, he might be rejected if the credit check turns up a less than ideal score. However, a cosigner can help that person still get the loan or apartment. Some banks or other institutions will make you aware of this option upfront, while other times you may need to ask after a rejection if a cosigner could help get you approved.

Debt Responsibility

At its essence, co-signing a loan for someone means that you assume the responsibility for the debt that person took on in the event that she defaults on the payments. It is important to realize that co-signing is more than just a declaration in favor of a person's credibility. When you sign those documents, you say that legally and financially you will assume the loan burden and payments if the person you co-signed for should miss a payment or otherwise be unable to pay for the debt.

Credit Responsibility

Not only will you have a responsibility financially that compels you to pay back the loan if the original borrower defaults, but your credit rating is also at risk. The loan appears on your credit rating even when the other party is making their payments on time. The amount that it affects your credit rating also depends on how much is left on the loan, and on any judgment that might require that you either assume the loan payments or pay off the loan in full.

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Friendship

Part of the responsibility involved in cosigning a loan involves your responsibility to the other party. Most times, a person who asks someone to co-sign a loan is a close friend or a family member. You need to find a way to ensure that your relationship stays intact if something should go wrong on the loan. People who need a cosigner clearly need one because they have had credit or financial trouble in the past. The responsibility for preserving the relationship in the event of a problem with the loan lies with both parties.

Late Payments and Penalties

If the person who takes out the loan is late on his payments, interest and possibly additional penalties will be assessed to the loan. The cosigner is not just responsible for paying the future monthly payments on the loan. Any interest or late fees that the loan recipient has accrued before responsibility passes to the cosigner will also need to be paid by the cosigner.

About the Author

Hans Fredrick has been busy in the online writing world since 2005. He has written on diverse topics ranging from career advice for actors to tips for motorcycle maintenance. He holds a Bachelor of Fine Arts from the University of Saskatchewan.

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