All you Need to Know Before you Co-sign a loan

By co-signing for a loan, you promise to pay off someone else’s debt if they cannot repay it. Co-signing for a family member or close friend is a generous act that can help your loved ones in numerous ways. It’s a big responsibility and requires a commitment, so it’s better to be fully aware of what all it entails before you sign on the dotted line. Here’s everything that you should know if you are planning to co-sign a loan with someone:

What does co-signing mean?

People usually ask others to co-sign for a loan when they have a bad credit score and aren’t likely to get approved for loans on their own. If you have a good credit score and history, the other person can get approved for a loan using your sound score. 

The concept may sound similar to a joint loan, but it’s nothing like a joint loan. The difference between a joint and a co-sign loan is that a co-signer has no right to use the borrowed money. The entire amount is accessible only by the principal borrower. Your only role is to repay the loan amount if the borrower fails to do so.

In case of the person defaults, you will be obliged to pay off the entire amount. Hence, you must be sure you are ready for that responsibility before agreeing.

Other than the loan amount, a co-signer will also be responsible for paying the following charges:

1.      Interest rates

2.      Late repayment penalties

3.      Collection fees

Possible negative impacts of co-signing

  • Affects your credit: Though you don’t have access to the money received from the loan, the co-signed loan will be recorded as borrowing in your credit report, which means your score will be affected. If the other person defaults or misses repayments and if you also are unable to repay the installment or the loan amount, it will affect your score.
  • Responsibility: Co-signing a loan is a huge responsibility. If you plan to co-sign a loan with someone, be 100% sure that you trust them. It doesn’t matter if the person has more money than you. If they fail to repay or don’t pay it intentionally, the lenders won’t care what the situation is. They will collect it from you since you agreed to pay it off on their behalf.
  • Possibly lose your personal property: In some cases, people are required to pledge personal assets as collateral. For example, if you have used your apartment as collateral and the person doesn’t pay off the loan. You will be asked to repay the entire amount, but if you cannot, the lenders have every legal right to cease your apartment immediately.
  • No way out: Once you co-have signed the loan papers, you can’t back out of it in any situation. No matter what, you will be in that agreement until one of you pays off the loan completely. Either the person makes timely repayments, or you must pay the entire loan balance. 


Co-signing is a generous but daunting task when it comes to motorcycle financing, requiring trust, communication, and careful planning. You can look at other alternatives if you aren’t sure about them. Depending on the finances and credit score of the person, you can help find suitable options to co-sign loans for them. However, if you agree to co-sign for someone, ensure you are both on the same page and that the person is 100% reliable. If poorly handled, a co-signed loan can damage your credit score and your finances badly. We hope this helps you understand what it means to be a co-signer and if you are ready for it.