Co-signer

To co-sign means to sign together with a borrower for a loan. The co-signer has the legal obligation to repay the loan if the borrower is unable or unwilling to repay it. The co-signer reduces the risk for the lender and can support the borrower to receive the loan. 

This can greatly increase the chances for approval for the borrower or even obtain a lower interest on their loan. 

Co-signer and co-borrower - what is the difference?

Both co-signing and co-borrowing have similarities but are different. When you co-sign, you help someone to receive a loan by guaranteeing you will step up in case they can't follow their obligations. This means you don't own the loan or the thing they pay for with it. 

Co-borrow, on the other hand, implies ownership. Your name is also on the loan and/or the property it buys. If you co-borrow to buy a house, both your names own the house. You share the responsibility for repaying the loan. 

Obligations of the co-signer

When you co-sign a loan you agree to take serious legal responsibilities. In the event the main borrower doesn't pay, then the co-signer must repay the loan. This includes all elements of the loan - interest, fees, penalties, etc. Being a co-signer is a serious legal obligation to pay back the loan if the borrower is unable to do so. 

Steps before agreeing to co-sign a loan

Co-signing is a great way to help someone - not just to receive a loan, but to improve their quality of life and their credit score. It can help build trust, but it can also destroy it. If the borrower is unable to repay the money you can be stuck in the uncomfortable situation of paying back someone else's loan. 

So it's always good to be well prepared for the worst-case scenario before agreeing to become a co-signer. Read the contract of the loan carefully and make sure you understand all the aspects of it, including your responsibilities. 

Next, make a good check of your financial situation and see if you can handle such financial risks. Next, try to assess the financial situation of the person receiving the loan. Does the person have other loans? Does the person have a stable income? These are important questions to help you make your decision. Last, but not least - after you agree to become a co-signer, try to check often on your friend and how he is doing with the repayment of his loan. If there is a problem it can help you spot it early on.