A cosigner is a second person who signs a loan with you and agrees to repay it if you do not. Their income and credit can help an application qualify, and they share full responsibility for the debt.
A cosigner adds their own creditworthiness to a loan application, agreeing to be legally responsible for the debt if the primary applicant does not pay. Lenders may consider a cosigner's income and credit history, which can help an application qualify or affect the terms offered. Because the obligation is shared, the loan and its payment history can appear on both people's credit reports, and a missed payment can affect both. A cosigner is generally responsible for the full balance, which distinguishes the role from a co-applicant, who shares ownership of the loan or its proceeds as well as the obligation.
A cosigner signs the loan agreement alongside the borrower and becomes legally responsible for the debt. If the borrower does not pay, the lender can seek payment from the cosigner, and depending on state law it may be able to do so without first trying to collect from the borrower. Federal rules require many lenders to give cosigners a notice explaining this obligation before they sign.
Cosigners are common when an applicant has little credit history or income that does not meet a lender's standards on its own. Missed payments can have consequences for both people, and the loan may limit how much the cosigner can borrow elsewhere while it is open.
A cosigner differs from a co-borrower or joint applicant, who usually shares both the obligation and the loan proceeds or ownership of what is purchased. A cosigner takes on the obligation without receiving the money. Anyone asked to cosign can request a copy of the agreement and the disclosures and read them as if they were the borrower, because in practice they may become one.
An example
A young worker with no credit history applies for a loan, and the lender asks for a cosigner. A parent agrees and signs the agreement after receiving the cosigner notice. Later the borrower misses payments, and the lender contacts the parent for the overdue amount, as the agreement allows.
Common misconceptions
Myth: A cosigner is only a character reference.
In fact: A cosigner is legally responsible for the full debt if the borrower does not pay.
Myth: The lender must pursue the borrower before contacting the cosigner.
In fact: Depending on state law and the agreement, the lender may be able to collect from the cosigner without first pursuing the borrower.
Myth: A cosigner can leave the loan whenever they want.
In fact: Removing a cosigner usually requires the lender's agreement or paying off or refinancing the loan.
What to check
- Whether the lender requires a cosigner at all.
- The cosigner notice and what it says about collection.
- Whether the cosigner will be told about missed payments.
- How a cosigner could be released from the loan.
How this applies at Desert Rock Capital
Desert Rock Capital does not use cosigners. A cosigner is not part of the application: you apply in your own name, nobody else signs for you, and the review looks at your income and ability to repay with no credit check.
Based on our loan requirements, loan amounts and application pages. Your actual terms are in the loan agreement.