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What You Need to Know Before Cosigning a Loan
[May 07, 2024]

What You Need to Know Before Cosigning a Loan

Many people have been approached by a family member, friend or even acquaintance about cosigning a loan, and aren't sure how to proceed. Cosigning a loan is a major responsibility and should not be considered without a full knowledge of the process and potential outcomes. Before anyone signs on the dotted line, it's important to understand the full implication of what it means to be a cosigner.

"Sometimes the word 'cosigner' can spark fear among the person taking on the responsibility," said Amy Robbins, associate director of operations with Take Charge America, a nonprofit credit counseling and debt management agency. "Yet, the process doesn't have to be daunting as long as both parties - cosigner and consignee - are educated and understand the responsibilities involved in the process."

Robbins outlines important aspects of cosigning a loan and how to best protect yourself:

  • Understand what cosigning a loan means: When you agree to cosign a loan, you are essentially taking responsibility for paying the amount back if the other party defaults on the loan for any reason.
  • Be aware of how cosigning a loan could impact your relationship: A cosigned lan that reaches full payment without issues can build trust and strengthen a relationship. Alternately, a defaulted loan on part of the primary borrower makes the cosigner responsible for payment, often negatively affecting the relationship - sometimes beyond repair. It's important to make sure both the primary borrower and cosigner are clear about the potential consequences that could impact their relationship.
  • Acknowledge that your credit score could take a hit: Even if you are the cosigner of a loan and not the primary borrower, if the loan defaults, your credit score can drop just the same.
  • Realize that as a cosigner, your wages can be garnished: If the borrower and co-signer are unable to repay a loan, the lender can sue the cosigner to garnish wages. But that's not all. In order to satisfy payment, lenders can also seize the cosigner's property or other assets.
  • Educate yourself on cosigner rights for your state. Each state has their own legal cosigning rules and regulations. Discover more about the pros and cons of cosigning a loan

For additional financial resources and debt payoff strategies, visit Take Charge America's Budget Tools.

About Take Charge America, Inc.

Founded in 1987, Take Charge America, Inc. is a nonprofit agency offering financial education and counseling services including credit counseling, debt management, housing counseling and bankruptcy counseling. It has helped more than 2 million consumers nationwide manage their personal finances and debts. To learn more, visit or call (888) 822-9193.

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