Recently I was talking with a friend about cosigning a loan, and the conversation reminded me how risky that decision can be. Someone I know cosigned a loan for another person, and after a falling out the original borrower stopped making the payments on purpose to retaliate. Stories like this may sound extreme, but they’re not uncommon—cosigning can carry serious consequences.
I looked into other accounts and found numerous examples of cosigning gone wrong. One notable piece described a person whose credit score dropped 200 points after a friend missed several mortgage payments. That story, along with many others shared online, highlights how quickly a cosigner’s financial life can be upended.
Below is what you should understand before agreeing to cosign a loan.
What is a cosigner?
A cosigner is someone who signs a loan with another borrower to increase the chances of approval. Lenders accept cosigners because they provide added assurance that the loan will be repaid. This is common when a borrower has a limited credit history, low credit score, or insufficient income.
However, by cosigning you’re legally committing to repay the debt if the primary borrower can’t or won’t. If the borrower stops making payments, the lender can pursue the cosigner for missed payments, potentially leading to lawsuits, late fees, collection actions, and damage to your credit report.
Cosigning can hurt your ability to get credit later
If you plan to finance a home, car, or other major purchase, think carefully before cosigning someone else’s loan. There are two key reasons cosigning can block your future borrowing:
- Missed payments on the account may appear on your credit report and lower your credit score, undermining your ability to qualify for future loans.
- The loan you cosigned will typically be counted as your debt when lenders assess your debt-to-income ratio. Even if the borrower makes every payment on time, the extra liability can make lenders view you as having too much existing debt.
Removing yourself as a cosigner is difficult
Getting released from a cosigned loan is rarely straightforward. In most cases the loan must be refinanced to remove a cosigner’s name. That requires the primary borrower to qualify on their own or find another solution, and some borrowers resist refinancing precisely because they want the cosigner to remain responsible.
Refinancing may also be impossible due to market conditions, changes in property value, or the borrower’s financial situation. So, while removal is sometimes possible, it’s largely dependent on the lender and the borrower’s ability to secure new financing.
Cosigning can strain or ruin relationships
Money often complicates personal relationships. There are many stories of cosigners who ended up estranged from the person they helped when finances soured. If you decide to cosign or lend money, be prepared for the possibility that you may not be repaid and that the relationship could change.
It’s wise to consider any money you lend or any loan you cosign as something you might never see returned. That mindset can help you make a more cautious, realistic decision.
Cosigning is a personal decision—be prepared
Many people who agree to cosign expect the worst-case scenarios “won’t happen to them.” But that optimism is often what leads to regret. Before cosigning, evaluate whether you can afford to make the payments if the borrower cannot. Ensure you understand the legal obligations and the potential effect on your credit and future borrowing ability.
There are legitimate situations where cosigning may be helpful, such as helping a close family member establish credit. Even so, enter that commitment cautiously: know the risks, have clear expectations with the borrower, and consider alternatives like gifting money, offering a co-signed lease, or suggesting the borrower pursue secured credit-building options.
Ultimately, decide only after thinking through worst-case scenarios. If you do cosign, make sure you can cover the payments yourself and have a plan for how to handle missed payments, refinancing requests, or other complications.
Would you ever cosign a loan? Why or why not?