Co-signing a loan for a family member.

What to know about co-signing a loan

Let us help you realize the financial responsibility you're taking on before co-signing a loan.

Your friend or family member wants to take out a loan but they don't qualify. They could, however, if someone co-signs, so they ask you. Before you jump in to help, understand how the decision potentially impacts your credit. Consider the following carefully.

What happens when you co-sign

There are potential risks when co-signing a loan.

  • You are 100% responsible for the debt, in addition to the primary borrower. When you co-sign, you agree to pay the loan back in full "plus any late fees or collection costs" if the primary borrower defaults or misses just one payment. If you can't pay, the lender could sue you or garnish your wages.
  • It can lower your credit score. The primary borrower's late or missed payments can prevent you from qualifying for personal loans or other lines of credit in the future.

Factors to consider before co-signing

Think about the following before agreeing to co-sign a loan.

  • Is the borrower able to make payments on time? If the primary borrower doesn't have a steady source of income, making on-time payments may become an issue.
  • How can you protect your credit? Ask the borrower to make any missed payments within 30 days to ensure your credit score (theirs, too) doesn't take a hit.

Your investment is key

If you're comfortable co-signing a loan, treat the debt like it's your own.

  • Set a timeline. Agree on a specific date to get your name off the account. To do this, the primary borrower must refinance the loan or pay off the loan in full.
  • Monitor the account and your credit report. Review online statements to make sure the primary borrower is regularly making payments.

The information in this article was obtained from various sources not associated with State Farm® (including State Farm Mutual Automobile Insurance Company and its subsidiaries and affiliates). While we believe it to be reliable and accurate, we do not warrant the accuracy or reliability of the information. State Farm is not responsible for, and does not endorse or approve, either implicitly or explicitly, the content of any third party sites that might be hyperlinked from this page. The information is not intended to replace manuals, instructions or information provided by a manufacturer or the advice of a qualified professional, or to affect coverage under any applicable insurance policy. These suggestions are not a complete list of every loss control measure. State Farm makes no guarantees of results from use of this information.

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