Cosigned a loan? What you owe when the borrower stops paying

When you cosign, you take on the debt along with the borrower. The FTC's Credit Practices Rule requires the lender to tell you so before you sign, in a separate document called the Notice to Cosigner, whose wording the rule sets. Among other things it says:

• You may have to pay up to the full amount of the debt if the borrower fails to pay. Late fees or collection costs can add to that amount.
• The creditor can collect from you without first trying to collect from the borrower.
• The creditor can use the same collection methods against you as against the borrower, such as suing you or garnishing your wages.
• If the debt is ever in default, that may become part of your credit record.

When the borrower falls behind

• You can be asked to pay. The CFPB says you will be asked to make the payment when the borrower misses one.
• Late payments land on your reports too. On a cosigned student loan, the CFPB says late or missed payments show on both your report and the borrower's.
• On a car loan, the lender can repossess and sell the car, and depending on state law it may sue you and the borrower for what is left (see what happens after repossession).
• On a private student loan, lenders often hire collectors and may sue (see student loans in default).

Your rights with a collector

The Debt Collection Rule protects anyone who is obligated, or said to be obligated, to pay a debt. A cosigner is one. You can ask the collector to prove the debt and use the limits on calls and contact.

Getting off the loan

There is no general federal right to be released. Some private student loans offer a cosigner release, on conditions set in the loan's terms and on the lender's or servicer's website. For any other loan, ask the lender in writing what it allows.

While the loan is open

The CFPB suggests asking the lender to send you the monthly statements or give you access to the online account, so you learn of a missed payment when it happens.

If the borrower dies

A cosigner is one of the people the CFPB lists as possibly responsible for a debt after the borrower's death (see debts after someone dies).

Before you agree to cosign

A lender cannot make you put your information on someone else's loan, and it cannot make certain people, such as a spouse, cosign unless they are applying jointly. The CFPB's advice is to check that your own budget could carry the monthly payment.