Legal Definitions - cosign

When a person cosigns a financial agreement, they sign a document alongside the primary borrower, thereby agreeing to share full legal responsibility for the debt or obligation. This means that if the primary borrower fails to make payments as agreed, the cosigner is equally obligated to fulfill those payments. Cosigning often occurs when a primary borrower has insufficient credit history or a low credit score, and the lender requires additional assurance that the obligation will be met. By cosigning, an individual provides their own creditworthiness as a guarantee, making them just as liable for the debt as the primary borrower.

• Private Student Loan

  Imagine a college student, Sarah, needs a private loan to cover her tuition, but she has no established credit history. Her mother, Maria, agrees to cosign the loan application. This means Maria is signing the loan agreement with Sarah, promising the lender that if Sarah cannot or does not make her monthly loan payments, Maria will be legally responsible for paying the outstanding balance. Maria's good credit history helps Sarah secure the loan, but it also places a direct financial obligation on Maria.

• Small Business Loan

  Consider David, who is starting a new catering business and needs a loan to purchase equipment and supplies. Since his business is brand new and has no financial track record, the bank requires a personal guarantee. David's business partner, Emily, agrees to cosign the business loan. By doing so, Emily is personally guaranteeing the loan. If David's business struggles and cannot repay the loan, the bank can legally pursue Emily to recover the funds, impacting her personal finances and credit.

• Personal Loan for Debt Consolidation

  Suppose Mark has accumulated several high-interest debts and wants to consolidate them into a single personal loan with a lower interest rate, but his credit score is not strong enough to qualify on his own. His brother, Tom, who has excellent credit, agrees to cosign the personal loan. Tom's signature on the loan agreement makes him equally responsible for the debt. If Mark misses payments or defaults on the loan, Tom will be legally required to make those payments, and his own credit score could be negatively affected if the loan goes unpaid.