To co-sign is to affix one’s signature on documentation allowing another person to avail of a loan or enter into a lease or similar agreement.
The additional signatory is referred to as the co-signer. By co-signing the contract or agreement, the co-signer agrees to share responsibility for loan repayment, especially if the main borrower is later unable to repay the loan.
As this is a big responsibility, it is important to understand the risks before agreeing to be a co-signer. For one thing, co-signer’s financial standing and credit score may be badly affected if the borrower does not make the necessary payments on time.
It is usually by getting a co-signer with a clean record and good credit ratings that a borrower can be granted a loan, so the co-signer is also put in a more difficult situation, should the borrower be unable to meet his obligations.
It is important for the co-signer to do some research on the person’s ability to pay. Also, it may be helpful to ask for or develop a back-up solution, just in case the borrower encounters financial difficulties within the given period for loan repayment.
It is a completely different situation, however, if co-signing is done with the agreement that both parties wish to request for a loan for their mutual benefit. This goes without saying that both parties accept responsibility for the repayment of the loan.
A married couple, for instance, may affix their signatures on the same housing loan contract. In such cases, though, it could still be very helpful to decide on how payments are to be made, especially if payments will not be coming from a shared account.
