Cosigner
A person who agrees to repay a loan if the primary borrower defaults, used to help borrowers qualify for credit.
What is Cosigner?
A cosigner is a creditworthy individual who signs a loan agreement alongside the primary borrower, agreeing to be equally responsible for repayment if the borrower defaults. Cosigners allow borrowers with limited credit history, low credit scores, or insufficient income to qualify for loans or obtain better interest rates. Critically, cosigning is not a formality: the loan appears on the cosigner's credit report, affects their debt-to-income ratio, and any missed payments or default directly damages the cosigner's credit. A cosigner has legal obligation for the full debt but typically none of the asset ownership or benefit associated with the loan.
Example
A recent college graduate wants a $20,000 auto loan but lacks credit history. A parent cosigns the loan. The loan appears on both credit reports; both are legally liable. If the graduate makes all payments on time, both benefit from positive credit history. If the graduate misses payments, the lender can immediately pursue the parent for the full balance — and the parent's credit score drops — even though the parent has no ownership of the car.