LawHelp State Frequently Asked Questions

Helping low-income Coloradans find solutions to civil legal problems

Back to Legal Topics > Consumer Issues

Being a Co-signer has its Advantages and Risks
by: Colorado Legal Services
Q.	Are you thinking of co-signing on a loan?

A.	As home prices reach record highs, many Colorado residents are turning to loans co-signed by a family member or friend to help fund that new home. An option with many types of loans, co-signing makes a person with poor or low credit history eligible for a loan by making another person with good credit accountable for payment on the loan. Usually a family member or close friend, the co-signer accepts many risks when agreeing to re-pay the loan if the primary signer fails to.

Q.	What are the risks of co-signing?

A.	The most important thing to remember when considering co-signing is that you are being asked to take a risk that a professional lender will not take. A lender can go after a co-signor immediately upon default. A lender may also be able to recover against the co-signer in the event that the primary borrower dies or files for bankruptcy. You may have to pay the full amount of the loan, and the creditor can collect this debt from you without first trying to collect from the primary borrower, which means the lender does not have to exhaust all efforts to recover from the original borrower. Co-signing might keep you from getting other loans as it is considered a financial obligation. When asked by a relative to co-sign to help them pay for a new car or perhaps a close friend is facing repossession, you must remember that it is a serious commitment.

Q.	What if you are co-signing?

A.	If you do decide to co-sign first be sure you can afford to pay the loan. If you are asked to pay and cannot, you could be sued or your credit record could be damaged. If a creditor obtains a judgment against a co-signor, any non-exempt property of the co-signor can potentially be seized and sold to satisfy that judgment, including any bank accounts, paychecks and other sources of income through garnishment. Ask the lender to agree, in writing, to notify you if the borrower misses a payment. Make sure you get copies of all important contracts. There are ways to co-sign without committing to repay extra expenses on the loan. Ask the lender to establish the specific amount of money that you might owe. The lender does not have to do this, but some will if asked. You may also be able to negotiate the specific terms of your debt. Ask the lender what options you have in only paying the principle balance on the loan, and not any extra fees, costs, or charges.

Q.	When could it be worthwhile to co-sign?

A.	When it is important to you that the borrower get credit and you have good reason to believe the borrower will repay the debt, it can be worthwhile to co-sign for a loan or credit card. Parents and spouses often co-sign to help an adult child with little credit history or a struggling spouse to get on their feet. Co-signing support is a high risk, but there can be times when one close to you needs your help. There are alternatives to co-signing that will help a loved one find the necessary funds. Prospective co-signers can take on the loan themselves and have the would-be co-signer pay them directly. While this option carries similar risks as co-signing, it does not help the co-signer reestablish good credit. You may wish to have an agreement with the primary borrower that he/she will notify you of any troubles so you have an opportunity to correct the matter with the lender. You should also be sure that you can afford to pay the loan yourself, if you have to.

Q.	Looking for a co-signer?

A.	If your credit history is less than perfect, and you are looking for someone to co-sign a loan with you it is important that you talk with whoever is considering co-signing about the risks they will be taking, and the steps you will be taking to reestablish your credit and repay the loan on your own. Your obligation is both to the lender and your co-signer as any failure on your part could permanently damage the co-signers credit in addition to any loses they might take in helping you repay. The co-signer is investing in you, and whether you are co-signing or asking a relative or close friend to do so, it is a big step and a serious commitment.

Q.	What is the role of the Federal Trade Commission?

A.	The Federal Trade Commission determines rules regarding co-signing and requires all those considering co-signing to read a notice of what their responsibilities are. To read that notice, and learn more about what contracts are covered by the FTC visit their website (click here).

Q.	Is there any other information about co-signing?

A.	The Educational Credit Center of Yahoo.com Co-signing on a Loan - The Federal Trade Commission This communication is made available by Colorado Legal Services, Inc., (CLS), as a public service and is issued to inform not to advise. No person should attempt to interpret or apply any law without the assistance of an attorney. The opinions expressed in this communication are those of the authors and not those of CLS or its funding sources. If you need advice on this or any other legal problem, consult an attorney of your own choosing. If you cannot afford an attorney, talk to Colorado Legal Services, 303.837.1321. Updated 6.10 D_33


	Search

	Tips for Successful Searching

Find Legal Help On

Related Resources

more...

	Last Reviewed On: 06/11/10

Information, Not Legal Advice

Information available on this site is not to be considered legal advice, and is provided as general information only. By providing this information, we are not acting as your lawyer. If you need legal advice for any specific situation, contact an attorney of your choice.

The information is accurate to the best of our knowledge as of the date noted on the materials, but laws, regulations, court forms and court opinions change periodically so we cannot promise that this information is always up-to-date and correct.

Lawyer Advertising

Information on this website is not intended to be used as advertisement of services or solicitation of business. Before hiring any attorney, you should investigate his or her reputation and qualifications.

Links

We cannot guarantee the accuracy of information obtained from any links posted on this site. Links do not imply any sponsorship, affiliation or association with sites; nor authorization to use any trade name, registered trademark, logo, legal or official seal, or copyrighted symbol reflected in linked sites.

E-mail

Viewing this website or transmitting messages to Colorado Legal Services, its employees or any other organization and its employees through this website does not create an attorney-client relationship. Unless an attorney-client relationship has previously been clearly established, your e-mail is not protected by the attorney-client privilege. Unencrypted e-mail can be intercepted by persons other than the recipient.

Deadlines

Deadlines are extremely important in most legal matters. You may lose important legal rights if you do not obtain an attorney immediately to advise you. Many people do not check their e-mail daily, and some attorneys do not respond to unsolicited e-mail from non-clients.

Terms of Service

Coloradolegalservices.org is a non-profit website supported by a grant from LSC to serve the public interest. No services or products are offered for sale by Colorado Legal Services, and use of this site is unrestricted.

Did you find what you need? Can we improve this website? Please take a few moments to complete this survey. (Do not describe your legal question as part of your response, or send your email or phone requesting a reply, as you will not get a reply. Call 303.837.1313 if you have questions about whether you qualify for CLS services.) Encuesta de usuario del sitio web (Versión en español)

ColoradoLegalServices.org is supported by our online partner: