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Cosign - Explained

What does it mean to Co-Sign?

Written by Jason Gordon

Updated at April 6th, 2023

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What is a Cosigner?

Cosigning is a situation where two people merge to sign for a loan in order to guarantee payment. By you placing your signature it means that you will respect the terms and conditions of the loan in case the other party defaults

Back To: COMMERCIAL LAW: CONTRACTS, PAYMENTS, SECURITY INTERESTS, & BANKRUPTCY

How Does Cosigning Work?

A co-signer may be needed anytime and not necessarily when one has a bad credit history. An example is students or those under the age of 21 with no clear salary that requires a loan. Because their credit history is not known, they may need to get a guarantor with good credit history to co-sign the loan with. This person should be able to promise to pay in instances of default. 

Another motivation for a co-signers signature is the fact that one can access the loan with minimum interest rate unlike if they apply alone. 

The Federal Trade Commission (FTC) claims that even if you settle your loan within time, the debt represented in that loan is recorded in your credit history which may have a negative impact on your finances. This is true because it may decrease the amount of loan you can be granted because of your obligation with the foreign debt. 

Prior to cosigning, you should understand the amount of money you will be liable to pay in a situation where the other party does not pay. If possible, get all relevant documents on the loan just in case you need to defend yourself in the future. 

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cosign co-signing

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