Co-signing a loan means agreeing to repay the whole debt if the borrower doesn’t. The lender can collect the full balance from you, the loan appears on your credit report, and it counts against you when you apply for credit of your own, for as long as the loan is outstanding. You get none of the money and have no control over whether payments are made. This page explains what you are liable for, how co-signing affects your credit and borrowing, what to check before you sign, and how co-signers get released. It is part of our personal loans and lines of credit guides.
What co-signing commits you to
| Aspect | What it means for you |
|---|---|
| Liability | You owe the entire balance, not a share of it |
| When the lender can come to you | As soon as a payment is missed, usually without first pursuing the borrower; the agreement sets the terms |
| Credit reporting | The loan appears on your credit report, and late payments count against you |
| Your own borrowing | The payment counts as your debt when you apply for a mortgage, car loan or line of credit |
| Duration | Until the loan is repaid or the lender releases you in writing |
| Collection | If the debt goes unpaid, the lender can send it to collections or sue you, and a court judgment can lead to wage garnishment |
A co-signer and a guarantor are often treated as the same thing, but the agreement decides. In general a co-signer is a co-borrower, responsible from the first payment, while a guarantor promises to pay if the borrower defaults. On a mortgage the distinction also decides who is on the title; the guide to co-signing or guaranteeing a mortgage covers both roles in full.
How co-signing affects your credit and borrowing
The loan’s payment history is reported on your file as well as the borrower’s:
| What happens | Effect on your credit |
|---|---|
| The borrower pays on time | Neutral to positive: an account in good standing |
| The borrower misses a payment | A late payment on your report |
| The borrower defaults | A default or collection account on your report |
| You step in and bring the loan up to date | The account recovers, but you have paid the debt |
Even if every payment is made on time, lenders count the co-signed payment as yours. Mortgage lenders, for example, include it in your total debt service (TDS) ratio, the share of income that goes to housing costs and debt payments. Our guide to GDS and TDS ratios explains the limits lenders apply.
You co-sign a car loan with a payment of $600 a month. You earn $6,000 a month before tax. When you apply for a mortgage, the lender adds the $600 to your obligations, raising your TDS ratio by 10 percentage points, whether or not you have ever made a payment on the car. That can shrink the mortgage you qualify for, or push the ratio past the lender’s limit.
Before you co-sign: what to check
About the borrower:
| Question | Why it matters |
|---|---|
| Why does the lender want a co-signer? | A lender asking for one has judged the borrower a risk on their own |
| Is the borrower’s income stable, and have you seen their budget? | You are betting on their ability to pay |
| How have they handled debt before? | Past repayment is the usual guide to future repayment |
| What happens to the loan if they lose their job, fall ill or the relationship ends? | Your obligation continues through all of these |
| Will they give you access to see the account? | You can’t act on a missed payment you don’t know about |
About the loan:
| Question | Why it matters |
|---|---|
| What are the amount, term, rate and monthly payment? | This is the obligation you are taking on in full |
| Could you make the payments yourself if you had to? | If not, a default would land on you with no way to cover it |
| Is the loan secured? | On a car loan the lender can repossess the car, but you can still owe the shortfall after the sale |
| Will the lender notify you of missed payments? | Some do and many don’t; ask for it in writing |
| Is there a co-signer release clause? | Some lenders release a co-signer after a period of on-time payments; many don’t offer it |
| Does this fit your own borrowing plans? | A mortgage or car loan application in the next few years will count this payment |
How to protect yourself if you co-sign
| Step | How |
|---|---|
| Get any co-signer release terms in writing | Confirm what the lender requires before it will release you |
| Arrange notice of missed payments | Ask the lender to tell you directly, or get online access to the account |
| Monitor your credit report | The co-signed account shows on it; how to read your credit report explains what to look for |
| Keep copies | The agreement, the payment history and any messages with the lender |
| Make a written agreement with the borrower | It doesn’t bind the lender, but it sets out what you each expect and when they plan to refinance on their own |
| Co-sign only what is needed | A smaller loan or shorter term limits what you could owe |
Alternatives to co-signing
Some ways of helping limit what you can lose:
| Alternative | How it helps |
|---|---|
| A gift or a direct loan of a set amount | You decide how much is at risk, and the debt stays off your credit report |
| A larger down payment | Reduces how much the borrower needs to borrow |
| A secured credit card for the borrower | They build credit using their own deposit as security |
| Adding them as an authorized user on your card | Helps build their credit history while you keep control of the account |
| A secured loan in the borrower’s name | Their own asset, such as savings, backs the loan instead of your credit |
| A credit union | Some lend to members other lenders would turn down, without a co-signer |
| Waiting while they build credit | Slower, but the obligation never becomes yours |
For borrowers with weak credit, bad credit loans covers the options that don’t need a second signature.
How to get released as a co-signer
| Method | How it works |
|---|---|
| The borrower refinances on their own | A new loan in their name pays off the old one and ends your obligation entirely |
| A co-signer release clause | If the lender offers one, usually after a run of on-time payments |
| Paying off the loan | Ends the obligation |
| Asking the lender | Possible, but the lender has no duty to agree |
| Selling the asset | On a car loan, selling the car can pay off the balance |
Some things don’t release you: a verbal promise from the borrower, a separation or divorce agreement (it binds the two of you, not the lender), the borrower saying they’ll take over the loan, or moving to another province. Only the lender can release you, in writing.
If the borrower stops paying and you can’t cover the debt yourself, the consumer proposal and bankruptcy guide explains the formal options for dealing with debts you can’t repay.