What is a co-signer?

If someone is building their credit history when applying for a loan, they might consider having a co-signer. That means that they and the co-signer are both responsible for making sure the loan is paid.

There are a few things to keep in mind if you’re the primary borrower or co-signer, though. Read on to learn more about what co-signers are and how co-signing on a loan works.

Key takeaways

• A co-signer supports a borrower who needs help qualifying for a loan. Co-signers are most often added to mortgages, personal loans, auto loans and student loans.
• The co-signer agrees to take the same responsibility as the borrower in a loan agreement and is legally obligated to take over any payments the borrower misses.
• A co-signer agreement can affect the borrower’s and the co-signer’s credit—positively or negatively—depending on how consistent the borrower is with making payments.
• Capital One, along with most major credit card issuers, does not allow co-signers. However, there may be other options, like becoming an authorized user on a family member’s or friend’s account.

A co-signer has the same account responsibility as the borrower and helps assure the lender that the loan will be repaid. The co-signer doesn’t have ownership rights to the property the loan is for or the funds provided by the loan, though. 

Less-than-perfect credit scores or high debt-to-income ratios might make it harder to qualify for a loan. But having a co-signer with a positive credit history profile could make it easier. And a co-signer can help secure better loan terms and lower interest rates. 

Co-signers might be an option when it comes to mortgages, auto loans, personal loans, student loans and some credit cards. 

Most major credit card issuers—including Capital One—don’t allow co-signers on credit cards. But becoming an authorized user is a similar option that might be worth exploring. 

Can anyone be a co-signer?

Lenders technically can’t set rules for who can be a co-signer—as far as their relationship to the borrower goes. But a co-signer generally needs to have their credit and personal finances in good shape in order to have the best shot at being approved. 

If the primary borrower is unable to make a monthly payment on their loan, the co-signer is legally responsible for covering the payment. If the borrower stops making loan payments altogether, the co-signer agrees to take over the repayment of the loan. 

It’s also helpful to know that the loan account could appear on the co-signer’s credit reports, as well as on the borrower’s.

Even if someone co-signs on your loan, it’s still important to keep up with payments and understand the terms of the loan. Things like missed payments can damage your credit and your co-signer’s.

If the loan appears on your credit report and there’s a record of things like on-time payments, being a co-signer can have a positive impact on your credit.

It’s important to know that being a co-signer comes with some personal risk, though. If the borrower makes late payments on the loan, for instance, it can potentially damage your credit as well as theirs. 

Plus, you may be on the hook for repaying the full loan amount if the borrower can’t make the payments. Becoming a co-signer could also change your debt-to-income ratio and credit utilization, which are two factors that might affect other loan approvals or terms in the future.

If you decide to co-sign a loan, it’s important for both you and the other person to be aware of what it entails. While a co-signer can help a borrower get a loan with favorable terms, the co-signer has the same financial responsibility to repay the loan as the borrower. 

If you’re planning to apply for a credit card but are unsure of what you might be approved for without a co-signer, it may be worthwhile to consider getting pre-approved. That way, you can get a clearer sense of your credit card options. You may also consider becoming an authorized user on someone else’s credit card account.

If a low credit score is making it harder for you to get approved for a personal, auto, student or mortgage loan, check out some strategies for improving your credit.