What Is Co-Signer?
A second person who signs a loan with the primary borrower and is equally responsible for repayment.
Definition
A co-signer agrees to repay the loan if the primary borrower cannot or does not. Lenders count both parties' income and credit when making the approval decision, which is why co-signers help borrowers with thin credit histories, low income, or low FICO scores qualify for loans or get better rates. The legal obligation is real: if the primary borrower misses a payment, the co-signer's credit report takes the same negative hit. Co-signers typically have no ownership interest in the asset (unlike co-borrowers on a mortgage). Some lenders allow a co-signer to be released from the loan after the primary borrower demonstrates a track record of on-time payments, but release is not automatic.
Example
A recent college graduate with a 620 FICO cannot qualify for an auto loan alone. With a parent co-signing at a 760 FICO, the lender approves at 5.9% instead of 12%.