When an individual credit applicant does not meet a lender's
requirements, they may be able to obtain a loan or other account by having a
co-signer. The co-signer's personal credit will also be checked, and
s/he will be required to sign a contract agreeing to pay the debt if the primary
applicant does not. Typically, the contract will specify that the primary applicant
and the cosigner are "jointly and severally liable" for the debt.
This means that if the primary applicant defaults (usually by missing one or
more payments), the creditor can attempt to collect from either them, or the
cosigner, or both, until the full amount is paid. The cosigner could potentially
end up paying the entire debt. S/he could be sued, and have assets seized
and/or wages garnished.
This includes debts from a "deficiency" following a repossession.
If you are asked to co-sign a credit application, think about
it very carefully. You will be taking a risk, but will you benefit from
it? What will the loan be used for? Who is the primary applicant? Is it your
close sibling or long-term spouse? Or is it the boyfriend/girlfriend that you
have known for only a couple of months? Is their own credit merely insufficient,
or is it damaged? If they have been irresponsible with their past creditors,
will they really be more reliable now, or will they continue the same
pattern of behavior, thinking that you will, of course, "bail them
out", and absorb the consequences of their actions? Do they really
understand the difficulty they could bring upon you if they default? Do they
Co-signing on a credit application can sometimes be a
good thing, but only if the primary applicant behaves in a diligent,
responsible manner, and takes their share of the obligation seriously.
Thousands of well-meaning people have had their hard-earned good credit ruined
as a result of cosigning for someone else. If you are not prepared to
pay the entire debt without serious damage to your own financial
position, then do NOT cosign for another person's debt.
A related topic is Authorized Users.
Credit And Banking Overview