What happens if I cosign a loan and the person doesn't pay?

You're 100% responsible for the full balance. Late payments damage YOUR credit score. The lender can sue YOU for the full amount. Unpaid debt goes to collections under YOUR name. It can also strain or destroy the relationship.

Can I remove myself as a cosigner?

In most cases, you can't simply remove yourself. Options include: the borrower refinances into their own name, the lender agrees to release you after a history of on-time payments (rare), or the loan is paid off. It's much easier to avoid cosigning than to get out of it.

Should I Cosign a Loan? Risks, Responsibilities, and Alternatives

Q: Should I cosign a loan?

Only cosign if you can afford to pay the full loan without financial hardship, you completely trust the borrower, and you're prepared for the worst-case scenario. About 38% of cosigners end up paying some or all of the loan. If you can't afford the payment, don't cosign.

Don’t cosign unless you can afford to pay the entire loan yourself and are willing to accept that you might have to. About 38% of cosigners end up making payments — this is not a hypothetical risk.

What Happens When You Cosign

Consequence	Impact on You
Loan appears on your credit report	Increases your debt-to-income ratio
Any late payment damages your credit	Even if it’s “their” loan
You’re sued if borrower defaults	Lender can come after you for the full amount
Your wages can be garnished	Legal judgments allow this
Hurts your ability to borrow	The full loan amount counts towards your DTI
Relationship strain	Money problems destroy relationships

The Statistics

Cosigning Statistic	Number
Cosigners who end up making payments	38%
Cosigners who experienced credit damage	28%
Cosigners who had a damaged relationship	26%
Cosigners who would do it again	Under 50%

When Cosigning Might Be Acceptable

Situation	Why
Your child’s first auto loan (small amount)	Building their credit; you control the outcome
Parent’s student loan (federal, income-driven)	Federal protections exist
You can pay the full amount without noticing	Minimal financial risk
Borrower has income but no credit history	Temporary need (immigrant, young adult)
You set up payment monitoring	Catch problems before they become disasters

When to Say No

Situation	Why
You can’t afford the loan yourself	If they default, you’re in trouble too
The borrower has a history of late payments	Past behavior predicts future behavior
It’s a large loan (car, mortgage)	Too much risk
You’d resent them if you had to pay	Don’t cosign with strings attached
Anyone pressures you into it	Financial pressure is a red flag
You’re planning to buy a home or car	The cosigned debt hurts your DTI

Alternatives to Cosigning

Alternative	How It Works
Gift them part of the money	No strings, no liability
Help them build credit first	Authorized user on your card, secured credit card
Help them find lenders that work with thin credit files	Credit unions, community banks
Co-borrow instead (joint loan)	You have legal rights to the asset
Offer a personal loan directly	You control the terms

The Bottom Line

Cosigning means taking on 100% of the risk for someone else’s loan with 0% of the benefit. If the borrower could handle the loan, they wouldn’t need a cosigner. Think of cosigning as giving a gift of the full loan amount — because there’s a 38% chance you’ll be making payments. If you’d give them the money as a gift, cosign. If you wouldn’t, don’t.