Should you co-sign a loan? Here are the pros and cons you need to know about


Getting a co-signer for a loan can be a smart move if you’re worried about qualifying for funding. Many lenders allow borrowers to apply with a co-signer for this reason.

When you co-sign a loan, you agree to take responsibility for paying back the loan if the primary borrower falls behind or is unable to keep making payments. Because you legally share the responsibility for paying back the loan, there are some upsides and significant potential downsides to consider before signing your name on the dotted line.

Pros of co-signing a loan

Improving your credit score

Being a co-signer on a loan could potentially help your credit score in a few ways. For one, it can help contribute to your credit mix, which accounts for 10% of your credit score. Your credit mix is a measure of how diverse your lines of credit are and shows lenders you can handle different types of debt.

And if the original borrower of the loan consistently makes their payments on time and in full, you can also reap the benefits of their positive credit habits. This is because payment history makes up 35% of your credit score, so the borrower’s good payment habits can significantly elevate your credit score over time.

Cons of co-signing a loan

Should you co-sign a loan?

Your decision to be a co-signer can come down to several factors including your relationship with the borrower, your understanding of the borrower’s financial circumstances and ability to pay, your credit score, the size of the loan and even your own ability to repay the loan if needed.

Before deciding to be a co-signer, carefully weigh these variables. It’s also important to consider the terms of the loan that your borrower is accepting because you’ll be held to those very same terms as well.

Some favorable loan terms to look out for can include, but aren’t limited to, no prepayment penalties and no late fees. This way, the borrower won’t be penalized for paying off the entire loan early and won’t accrue an additional charge for making a payment late.

SoFi and LightStream are two solid loan lenders because neither charge a prepayment penalty or late fee. They both offer funding amounts of up to $100,000 for qualified borrowers and flexible payment term options — SoFi offers loan terms as long as 84 months and LightStream offers terms as long as 144 months.

SoFi Personal Loans

  • Annual Percentage Rate (APR)

    8.99% to 25.81% when you sign up for autopay

  • Loan purpose

    Debt consolidation/refinancing, home improvement, relocation assistance or medical expenses

  • Loan amounts

  • Terms

  • Credit needed

  • Origination fee

  • Early payoff penalty

  • Late fee

LightStream Personal Loans

  • Annual Percentage Rate (APR)

    7.49% – 25.49%* APR with AutoPay

  • Loan purpose

    Debt consolidation, home improvement, auto financing, medical expenses, and others

  • Loan amounts

  • Terms

    24 to 144 months* dependent on loan purpose

  • Credit needed

  • Origination fee

  • Early payoff penalty

  • Late fee

Terms apply. *AutoPay discount is only available prior to loan funding. Rates without AutoPay are 0.50% points higher. Excellent credit required for lowest rate. Rates vary by loan purpose.

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Bottom line

Co-signing a loan is a well-intentioned gesture, especially when your goal is to offer help to a loved one who’s accepting the loan. But both the potential upsides and downsides need to be considered since the negative ramifications of your borrower falling behind on payments can pose a cost to both of you.

Because of this, be sure to consider important factors like the size of the loan and the borrower’s ability to pay the loan back. Also, remember that you’ll be on the hook for the same terms of the loan so make sure you’re comfortable with them as well.

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Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.



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