Why You Should Never Co-sign For Loan | Things You Should Know Before Co-signing

should never co-sign for loan

Getting approved for a certain loan or a credit card can be somehow hard for a person who doesn’t have a good credit score. Many businesses or a lender won’t approve for a loan, but if they have a co-signer or someone who co-signs for another person, then their application will be accepted. Suppose one of a friend or a close relative request for you to co-sign for them, then think twice before accepting a request. You might seem like a nice person just by using your signature, but it can put your life at risk, especially on your financial condition and credit score. While there’s a probability that you never face any consequences, but it’s not even worth it for you. So, here’s a reason why you should never co-sign for a loan or for a credit card.

One of the common reasons why you should never co-sign is because of the debt – as long as a person is paying the debt, you are fine, but when he suddenly stops making payment, then your credit will be ruined. You are putting your financial future in a line when you co-sign for someone else application. It’s just like gambling where you are taking a too risky step.

Not only that, but there are also other main reasons to stop co-sign for someone’s application. But before we move to the following reasons, let’s get clear about the co-signer.

Also Read: What Happens When You Make a Minimum Payment of Your Credit Card

Who is a Co-signer?

Co-signer is a person who signs the application of another person for certain loans who legally agrees to pay off the debt if a second cannot make a payment. In other words, if your friend applies for a certain loan and if he was not approved due to his poor credit score or income, then you become the co-signer if you agree to pay his debt.

So, we can say a co-signer can be a family member, friend, close one, or anyone who has a strong credit history and a source of income. If he/she agrees to pay off your entire debt, they become your co-signer.

Besides, when a lender examines a person’s application that has a bad financial history, then they won’t accept the application. That’s because a person won’t be able to repay the debt or loan which he/she was requesting; results the lending company can lose the money. But with the help of a co-signer, a lender will accept the application and ready to give a certain loan because the co-signer can repay the loan later on. Another benefit of having a co-signer is that a person can get a loan with a lower interest rate and with a lower fee. It will be lots easier for both co-signer and the person to pay off the loan.

Similarly, when you are first applying for a credit card and if you don’t have a sufficient credit score or an income, you can request to the co-signer to accept your agreement regarding the credit card. If a co-signer accepts your request, a card issuer can let you have a credit card.

8 Reasons Why You Should Think Twice Before Co-signing For a Loan

The following reason can apply whether you are co-signing for a loan or for a credit card. It doesn’t matter because all these things come under the credit. So, for now, let’s head to the reason to know why a person should never co-sign for a loan.

You Are Responsible For an Entire Loan

When you co-sign the application, then you also agree to pay the entire loan if the primary person cannot pay the loan later on. Let’s say a person is continuously making payment for 9 months, and suddenly he stops paying the amount, then who will go to pay? The overall responsibility of payment will go on a co-signer.

And that’s where you will see a financial disaster after taking full responsibility for credit. If a person is from your family member, then things can go in a different way. Your parents can lend you money to pay for the debt. However, what if a person is your friend? That’s why always think twice whenever you are trying to co-sign for someone.

You Cannot Get Any Real Benefits

When it comes to the benefits, only a borrower actually gets the full benefit of using a loan. They can live in a house or rent an apartment, drive a car, get a new credit card, and more. But what will you get? Only a small level of boost in your credit score – but only if they make a payment on time. It’s not even worth it to co-sign for another person; at least you can get some benefit from it, right? You are just giving help by risking your account without any means of returns.

Likewise, in terms of the credit card, only a cardholder can get a good reward and bonus while on making purchases, not for a co-signer. So, that’s why you should never co-sign for regarding loan or credit card.

Co-signing Will Affect Your Account and Borrowing Power

When you co-sign on other application then your both borrowing power and account, how? Here let’s be clear with an example.

Suppose I have a good credit score, and my account is stable. One day I co-sign an application of my friend for a house loan. A year later, he stops making any payment, and the lender repossesses his house. And after a couple of years, I apply for a loan to buy a new house for my family. At that time, a lender will view my credit report and saw a repossession mark, and that’s where the trouble begins. Why? Because previously, my friend cannot be able to pay the bill on time.

Due to this reason, I will have a hard time getting qualify for a loan because my credit history was impacted by the repossession. However, if I can somehow manage to get a loan, I cannot get a good interest rate. So because of my friend’s behavior, I have to pass through bask of crocodiles to get a loan.

You Can Get Sued If the Payment Not Made in Time

Another the worst thing about the co-signing is getting sued due to the late payment. When you co-sign, you have a responsibility to make a payment on time, even though another primary person doesn’t pay on the due date. Let’s say if your friends in on late payment, then just think you are on late payment.

Likewise, the late payment will get add on your credit report for seven years, which can impact your credit score. It also even doesn’t let you get approved on your own other accounts. It seems like the worst thing, right?

Besides, if there is any negligence on the payment, then the lender or creditor will come right after you. That’s the situation where you can be sued for a huge amount of debt, and even the judgment can be against you. Likewise, if the primary person gets on the bankruptcy due to the huge amount of debt, then you are clearly responsible for repaying the debt. Not only that, the lender even forces you to include the debit as your bankruptcy. That’s the worst thing to see when you are a co-signer.

You Will Raise the Level of Your Debt

Suppose you are a co-signer of your loved one for getting a loan. And if a person doesn’t make any payment for a month, then a level of debt is increasing day after day. When the debt level reaches the maximum point, it starts affecting your credit card. You won’t be approved to getting any loan. Why because your lender or a credit card issuer may consider that your current co-signed loan as your own debt. As I already said, if the debt ratio is too high for your income ratio, you will be denied from getting loans.

So, check the debt ratio of your loved one time to time that it is going on a proper track; otherwise, you have to face a personal problem regarding the loan.

Your Relationship Can be Ruined

Have you ever thought about what will happen to your relationship because of the co-signing? Well, your whole relationship between you and a primary person could suffer if it is not running on a track. Suppose a primary person makes a late payment or ruins your credit, then you have to recover all debt. Not only that, what if your relationship falls down before the entire loan is paid off? You will be just like swimming in the wild sea without using a life jacket.

So, keep your relationship in a proper track; otherwise, you have to deal with your own worst financial problem. And always think that you are co-signing a loan not making a purchase.

Getting Out of the Co-signed Contract is Not Easy as You Think

Once you co-signed a contract, it became a do or die situation. You cannot easily get out of the signed contract simply because you didn’t like the contract or regret it. The only possible way to escape from the contract is to create a new account of the other primary person to whom you sign a contract. In other words, a person has to improve his credit so that he can qualify for a loan. However, the procedure is not as straightforward as it sounds; a person has to work hard to get qualified.

More>> Smart Techniques to Build Good Credit

Besides, if you become a co-signer of your close one, then you should know that your name is also attached to the loan until it completely paid off. Likewise, if your financial structure gets in a bad position because of your signature, then don’t blame to another person. Might be he doesn’t know how co-signing will affect you. So, first, you should know what will happen to your finance because of your signature and after co-sign for a loan.

Don’t Co-sign to Make Someone Happy

If you are just co-signing to make your friend, relative, close one or other person happy, then don’t. It may cost you later if the co-signing agreement does not go on the right track.

First, you should know what consequences can happen if I co-sign the application for a loan. Second, do I even get a benefit from that? You have to think twice before making a complete decision about becoming a co-signer.

Frequently Asked Question

We have listed a few FAQs regarding why you should never co-sign for someone for a loan.

Does a Good Co-signer Guarantee for A Loan?

By using the co-signer can help you to qualify for a loan. If a co-signer credit score and income are strong, then you are a guarantee for a loan. Besides, a lender can also charge a lower interest rate and a high loan amount. So if you want a guaranteed loan, then look for a co-signer who has strong finance.

What Credit Score You Will Need For a Co-signer?

If you are thinking about becoming a co-signer, then you should need a good credit score range above 650. A credit score is that range can qualify for a co-signer. But also remember, some lenders also might need a higher credit score; it depends on their requirements.

Can You Get Denied For a Loan With a Co-signer?

A co-signer is a person who is ready to pay off your debt instead of yourself for a loan. If you the co-signer who has strong finance, then you can easily get approved for a loan. 


So, if you are helping someone to get a loan, sign for a small amount of loan rather than a huge amount. It helps both co-signer and a borrower because, on the one hand, you are helping and on the other hand, it will be trouble-free for a borrower to pay off the loan.

Besides, just because you have money in your account, don’t co-sign with a person you even don’t know. They can ruin your credit and your finance because of the above-mentioned 8 reasons.

Have you become a co-signer before? Leave a comment in the comment section down below.

Thanks for reading!

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