Aubrey Saffa Bender
Written by Aubrey Saffa Bender

Aubrey Saffa Bender has been a freelance journalist and journalist since 2013. She writes about topics that range from personal finances and education to technology and business. In her work for PaydayChampion, Aubrey primarily draws from her writing experiences regarding mortgages, home purchases, and real estate. She graduated with a B.A. with a major in English at The University of Colorado Boulder.

Securing a loan is difficult if borrowers don’t meet the lender’s eligibility criteria. Borrowers with bad credit or no credit history are often turned down for loans, even if they can afford to repay them. However, lenders allow borrowers to use a co-signer on their applications.

Co-signers help in securing a loan. But what are they? How do they help, and what are the pros and cons of using a co-signer? Read on to find out.

What Is A Co-Signer?

A co-signer connects two parties, creating an agreement that helps them overcome financial obstacles. Borrowers need a co-signer if they don’t qualify to apply for a loan or credit card on their own. The co-signer is a guarantor for the loan, ensuring that the borrower repays it. Having a co-signer helps the borrower obtain the credit they have not been able to get, and it benefits the co-signer by assisting them in building their credit history.

The responsibility borne by such individuals is not to be taken lightly and must only be agreed to with a full understanding of all the terms and conditions involved. The borrower and the chosen co-signer are equally responsible for repaying the debt while sharing any benefits associated with its use. The borrowers and co-signer suffer the same consequences if one fails to make timely payments or defaults on the agreement. Choosing a suitable co-signer is necessary. Family members or close friends are preferred due to greater trust and familiarity.

When Does A Personal Loan Require A Co-signer?

The primary purpose of requiring a co-signer is to give the lender more confidence in being repaid if no other alternative options exist. The risk of issuing such a loan without collateral or guarantee increases significantly. Borrowers who need more credit history or have experienced financial difficulties need a co-signer for approval from the lender.

Younger people, such as college students, often need more established credit histories and require another party’s assistance to secure financing. Having somebody else involved helps reduce the chances of delinquency by providing extra assurance that they can make payments.

Utilizing a co-signer provides both parties with some peace of mind regarding repayment, even though it is still up to the borrower to guarantee payments are made monthly according to their loan terms and conditions. It becomes clear why, many times, personal loans necessitate another signatory before being approved by lenders, with all the necessary steps taken into account.

How Does A Co-Signer Help?

The lender has an extra party equally responsible for the loan repayment or line of credit by having a co-signer, even if they did not benefit from the borrowed funds. A co-signer gives lenders more confidence in the borrower’s ability to repay the loan, making it easier to obtain approval for larger amounts or lower interest rates. However, note that by signing on as a co-signer, the individual takes on the same responsibilities and risks as the primary borrower. Carefully consider the decision to co-sign and guarantee that both parties know the potential consequences if the loan is not repaid on time.

Given its advantages, understanding how exactly a co-signer help is invaluable knowledge when applying for credit products such as mortgages and auto loans. It’s vital to note that there are subtle yet distinct differences between being a ‘co-borrower’ versus a ‘co-signer.’

Differences Between A Co-Borrower And A Co-signer

A co-borrower and a co-signer appear similar, but there is a difference between the two. The former shares liability and ownership, while the latter only takes responsibility for debt repayment without sharing legal rights or privileges. They have distinct characteristics that must be weighed carefully to make an informed decision.

A co-borrower enters into a legally binding contract with another party to assume joint financial responsibilities for both individuals involved. On the other hand, co-signers are solely responsible for repaying the loan if the primary borrower defaults on payments. They assume all legal obligations associated with it even though co-signers do not take part in the ownership of the asset under consideration, including making monthly payments and paying off any extra fees or interest accrued over time.

Pros Of Having A Co-Signer

Having a co-signer have tremendous benefits when it comes to applying for credit. Applicants with a co-signer are more likely to be approved than those without one. Having someone co-sign your loan is the key to unlocking access to financing and achieving financial goals such as home ownership or starting a business. Some benefits of having a co-signer include a credit score increase, greater loan amount, increased loan approval process, and low-interest rates. 

Credit Score Increase

Having a co-signer is one of the best ways to access better loan terms and open up more borrowing options. Here are some key pros of having a co-signer.

Co-Signer Builds Trust

A co-signer helps build trust with lenders by providing extra assurance that the borrower will pay back the loan.

Higher Chance of Approval

Having a co-signer on the application leads to a higher chance of approval and may result in a greater loan amount compared to applying alone.

Improved Financial Standing

With a co-signer, the borrower’s payment history appears on both applicants’ credit histories. This can result in increased credit scores over time, improving financial standing.

A good or excellent credit score is essential today. It affects everything from getting approved for loans to finding rental housing. Using a co-signer brings many benefits, such as improved chances of being approved for larger loan amounts and potentially lower interest rates. They make buying items like cars and homes easier while helping maintain good creditworthiness.

Greater Loan Amount

One potential benefit of having a co-signer on a loan application is the ability to secure a larger loan amount. The increase in loan amount is particularly helpful for individuals who need a large sum of money for a major purchase, such as a home or car.

Having a co-signer helps mitigate some of the risk factors lenders consider when evaluating a loan application. It includes a borrower’s credit score, income level, or employment status. Having a co-signer who meets the lender’s requirements makes the loan application appear less risky, and the lender is more willing to approve a higher loan amount.

Increased Loan Approval Chances

Having a co-signer increases the chances of loan approval. Potential borrowers can leverage the creditworthiness of their co-signer to qualify for more favorable terms and rates on loans. The option is ideal for individuals without enough credit or income history who still want capital access.

Lower Interest Rate

Lenders are more willing to offer lower interest rates on loans with co-signers. The co-signer is a guarantor and is equally responsible for the loan repayment. Lenders see the loan as less risky and are more willing to offer lower interest rates. 

The lender considers the co-signers financial stability when a borrower has a co-signer on their loan application. The extra information helps the lender assess the risk of the loan and results in a lower interest rate being offered.

For example, the lender views the borrower as high-risk and offers an interest rate of 20% without a co-signer if a borrower with a low credit score applies for a personal loan. However, the lender considers the loan less risky and shows an interest rate of 10% if the borrower has a co-signer with a strong credit history and income. 

Impact of Co-signer on Interest Rates for Personal Loans

The table below shows the impact of co-signer on interest rates for personal loans.

ScenarioCredit ScoreLoan AmountInterest Rate (Without Co-signer)Interest Rate (Without Co-signer)Potential Savings


The table shows three scenarios, each with a different credit score and loan amount. The interest rates for personal loans are displayed with and without a co-signer. The potential savings for the borrower are calculated based on the lower interest rate with a co-signer.

Risks Of Being A Co-Signer

Having a co-signer on loan documents increases the chances of approval, but it has drawbacks. 

The primary downside to having someone as a co-signer is the financial obligations they take on when agreeing to such an arrangement. Co-signers are legally responsible for repaying any debt incurred from the loan. Their credit score suffers due to late payments or defaults by the borrower.

The co-signers assets are at risk depending on state laws and regulations governing contracts involving co-signers. Legal implications arise from conflicts between lenders and borrowers over repayment terms or other matters related to the loan agreement.

Considering the risks before entering such an arrangement is vital to ensure everyone understands how shared responsibilities affect them financially if something goes wrong with the loan payment plan. Some risks include shared responsibility, impact on co-signer credit score, risk of default, financial responsibility, and credit score impact. 

Here are some statistics about the impact of co-signing on a co-signer’s credit score:

The average decrease in credit score if the primary borrower defaults on the loan10 points
Percentage of co-signers whose credit scores increased by more than 20 points20%
The average decrease in credit score if primary borrower defaults on the loan150 points
Percentage of co-signers whose credit scores increased by more than 20 points10%
Statistics about the impact of co-signing on a co-signer’s credit score

Shared Responsibility

Having a co-signer is a shared responsibility. It involves two parties, both of whom are obligated to the other and the loan agreement. The primary borrower is responsible for the repayment of the debt. Still, the co-signer plays a vital role in securing credit approval for the borrower and is jointly liable for payment if needed.

The liability of being a co-signer is serious and must not be taken lightly by either party. A breach of contract damages both borrowers’ credit scores and legal repercussions depending on state law.

The risks associated with having a co-signer must be weighed against potential advantages when pursuing it. Knowing all aspects of what the borrower is signing up for helps guarantee that everyone involved understands their obligations and knows what they can gain from entering into such an arrangement. 

Impact On Co-Signer Credit Score

Being a co-signer means taking shared responsibility if the primary borrower defaults. There are some considerations when deciding to accept the role.

  • Credit history and score –  Agreeing to be a co-signer harms the co-signers credit reputation with potential lenders if the borrower defaults.
  • Liability exposure – The co-signer is held responsible for any missed payments and repayment requirements in full.
  • Financial burden – Co-signers must pay outstanding amounts, significantly damaging their finances.
  • Effect duration – Being listed as a co-signer remains visible on the credit report for up to seven years from the closure date. Having an existing loan makes it difficult for either party to obtain other loans during the period.

Risk Of Default

Several risks must be considered when a person agrees to become a co-signer on another individual’s loan. The most prominent of them is the risk of default. The responsibility falls upon the co-signer if the primary borrower fails to make payments on time and in full. The outcome has serious consequences for both parties involved, as late or missed payments result in high-interest rates, penalties, and negative marks on their credit reports.

Being a co-signer, assume personal liability for any debt accrued by the other party. All parties must approve an agreement between the borrower, co-signer, and lender before taking effect, even if it concerns payment arrangements or forgiveness options. It implies that co-signers are prone to legal action if the borrower fails to repay the loan.

Financial Responsibility

An individual who opts to become a co-signer holds themselves accountable for the financial obligations of such an arrangement. Any signatory must know of their duties and legal liabilities as they have serious implications for both parties involved in the deal.

The primary duty of a co-signer involves taking full financial responsibility for paying back debt if the original borrower defaults or fails to meet payment terms according to the agreement.

Co-signers are expected to guarantee all payments are made timely and regularly. Financial obligations include paying off the principal, interest, late fees, etc.

Failing to comply with expectations damages one’s credit score and causes extra costs due to penalties incurred from missed payments.

Credit Score Impact

The impact of a co-signer on the credit score varies greatly depending on the specific situation.

In some cases, having a co-signer helps improve one’s credit score over time if they are someone with good payment habits who pays bills promptly. The co-signer and the borrower’s credit scores are negatively affected if payments are not made on time.

A single late payment causes a significant drop in a credit score, with the exact amount varying based on the individual’s credit history and the severity of the delinquency.

For example, a person with a credit score 780 sees a drop of up to 90-110 points after a late payment. The negative impact of late payments lasts up to seven years, making it difficult to secure loans or credit in the future.


Co-signers help borrowers obtain financing when their credit score or income level prevents them from doing so. Having a co-signer has benefits, such as a potentially improved credit score, but it comes with risks.

The most significant risk is the potential for default, which leaves both parties liable for repayment and results in long-term damage to their credit scores. Co-signers must thoroughly weigh their options before signing an agreement and understand all legal liabilities associated with being a co-signer.

Frequently Asked Questions

What is a co-signer, and how does having one affect a loan or lease agreement?

A co-signer assumes equal responsibility for repayment if the primary borrower defaults. Their good credit can help obtain approval and secure better terms.

What are the primary benefits of having a co-signer when applying for a loan or rental agreement?

Primary benefits are improved chances of approval, lower interest rates, higher loan amounts, and waiving of security deposits or down payments.

What are the potential drawbacks or risks associated with being a co-signer for someone else?

Drawbacks include equal liability for repayment, negative impact on your credit if terms are not met, and limitations on your own borrowing ability as a result.

Can you explain the difference between a co-signer and a co-borrower, and when is it advisable to use each option?

A co-signer has no access to the account or asset. A co-borrower shares full access and ownership. Use a co-borrower when joint acquisition is intended, co-signer when assisting someone else.

What factors should both the borrower and co-signer consider before entering into a co-signing arrangement?

Factors include the borrower’s ability to repay, protection of the co-signer’s credit, exit strategy for obligation, relationship dynamics, and long-term financial goals of both parties.

Aubrey Saffa Bender

Aubrey Saffa Bender

Content Editor and Writer

Aubrey Saffa Bender has been a freelance journalist and journalist since 2013. She writes about topics that range from personal finances and education to technology and business. In her work for PaydayChampion, Aubrey primarily draws from her writing experiences regarding mortgages, home purchases, and real estate. She graduated with a B.A. with a major in English at The University of Colorado Boulder.