How Co-Signing a Loan Affects Both People

A co-signer is legally on the hook for the whole loan, not just a share of it. The borrower gets the money or the car; the co-signer gets the same repayment duty, a debt that counts against their own borrowing, and, if the lender reports the loan on their file, a credit record of the borrower's late payments as well as on-time ones.

Key takeaways

The FTC's rule at 16 CFR 444.3 bars lenders and retail installment sellers under FTC jurisdiction from obligating a co-signer who has not first been told what the liability means. The standard way to comply is a separate Notice to Cosigner, which says the creditor can collect from the co-signer without first trying the borrower.
A co-signed installment loan does not use up a credit card's available credit. It adds a monthly payment to the co-signer's debt-to-income ratio, and if it is reported on the co-signer's file, its balance counts among the amounts owed that FICO scores weigh.
In the worked example below, a $500.95 monthly payment lifts a co-signer's ratio from 22.7% to 32.3%. Fannie Mae's guide lets a lender exclude such a payment only with 12 months of documented payments by the other party.
Getting a co-signer released is hard: in a 2015 CFPB review, 90 percent of private student loan borrowers who applied for release were rejected.
Chapter 13 bankruptcy can pause collection against a co-signer on a consumer debt, but the pause has exceptions and can be lifted. Under the Bankruptcy Code, the borrower's discharge does not remove the co-signer's liability.

What the Notice to Cosigner says

Under 16 CFR 444.3, a lender or retail installment seller that extends consumer credit commits an unfair practice if it obligates a co-signer who has not been told, before becoming obligated, what that liability means. A lender that gives the prescribed notice, as a separate document containing that statement and no other, is treated as compliant. The rule, part of the FTC's Credit Practices Rule published in 1984, defines lenders and retail installment sellers as those within the FTC's jurisdiction.

That leaves out banks, savings associations and federal credit unions. Their own versions of the rule were repealed after the Dodd-Frank Act removed the agencies' authority to write them. In 2014 interagency guidance, the Federal Reserve, CFPB, FDIC, NCUA and OCC said the repeal does not make those practices permissible, that they may still violate federal law against unfair or deceptive practices, and that a creditor that keeps providing the Notice to Cosigner has properly disclosed the co-signer's liability. The FTC also notes that federal law does not require the notice for real estate purchases, so some mortgage co-signers will not receive it.

The notice's key lines read:

"You are being asked to guarantee this debt. Think carefully before you do."

It goes on to say the co-signer may have to pay up to the full amount, plus late fees or collection costs. In the notice's words, "The creditor can collect this debt from you without first trying to collect from the borrower." The creditor can use the same collection methods against the co-signer as against the borrower, including suing or garnishing wages. If the debt defaults, that fact may become part of the co-signer's credit record. The notice also states that it is not the contract that makes the co-signer liable.

The FTC's consumer page on cosigning adds that some states require creditors to try the borrower first (the FAQ below covers how that shows up in the notice). The CFPB's page on co-signing a car loan adds that a lender may repossess and sell the vehicle after a default and, depending on state law, sue both people for the remaining balance.

Effect on the co-signer's file

The FTC says the lender can report the loan as the co-signer's own debt, and that a main borrower's late payments or default might show up on the co-signer's credit report. The page also says the co-signer's liability "may prevent you from getting credit" even if the borrower pays on time, because lenders count the loan as the co-signer's obligation.

That last point is often misdescribed as "your available credit drops by the loan amount." Available credit is a revolving-account idea: a card's limit minus its balance. An auto or personal loan is an installment loan with no limit to draw against, so it does not shrink the available credit on a card. It still shows up in three ways:

Debt load. It adds a required monthly payment to the co-signer's debts. A lender weighing a new application compares those payments with income, and the FTC and the CFPB both describe the co-signed loan as counting among that debt.
Amounts owed. FICO's amounts owed category, which it says determines 30% of a FICO Score, looks at revolving utilization separately from installment loans. For an installment loan it compares the balance still owed with the original amount, and a new loan starts near 100%.
Payment history. The CFPB notes that missed payments on a co-signed loan can make new credit harder to get later.

Worked example: debt-to-income before and after

Debt-to-income ratio (DTI) is monthly debt payments divided by gross monthly income:

DTI = total monthly debt payments / gross monthly income

Payment = P x r / (1 - (1 + r)^-n)
P = amount borrowed, r = monthly rate (APR / 12), n = number of payments

Illustrative example (hypothetical figures, not a quote): a parent with $5,200 gross monthly income and $1,180 in existing monthly debt payments co-signs a $25,000, 60-month auto loan at a 7.5% APR.

Step	Result
Monthly payment (r = 0.075 / 12, n = 60)	$500.95
Total paid over 60 months	about $30,057, of which about $5,057 is interest
DTI before: $1,180 / $5,200	22.7%
DTI after: $1,680.95 / $5,200	32.3%

The co-signer's ratio rises by 9.6 percentage points even if the borrower never misses a payment. The parent's card limits and balances are untouched; the change is in the payment the next lender has to count and, if the loan is reported on the parent's file, a new installment balance. To test other amounts, rates and terms, use the loan calculator.

Mortgage lenders and co-signed debt

A mortgage application is one place the extra payment can decide the outcome, because the lender counts monthly debts against income. Fannie Mae's Selling Guide, in its B3-6-05 section on monthly debt obligations (section dated 08/05/2026 when checked in October 2026), has a "Debts Paid by Others" policy. The page does not use the word co-signer, but it covers a borrower who is obligated on a non-mortgage debt without being the party who actually repays it.

In that case the lender may exclude the monthly payment from the borrower's obligations. The lender must obtain the most recent 12 months of canceled checks or bank statements from the other party making the payments, showing a 12-month history with no delinquent payments. The policy does not apply if the other party is an interested party to the subject transaction, such as the seller or real estate agent. It is a Fannie Mae rule for loans sold to Fannie Mae, and the lender "may" exclude, so it is not a right. Lenders using other programs apply their own rules, which this article did not check.

Applied to the example above, if the parent later applied for a Fannie Mae mortgage and the car's main borrower supplied 12 months of canceled checks or bank statements showing on-time payments, the lender would be allowed, though not required, to drop the $500.95 and measure the parent at 22.7% again. Without that paper trail, the 32.3% figure is the one that counts.

Bankruptcy and the co-signer

If the borrower files Chapter 13, 11 U.S.C. § 1301 generally bars a creditor from acting to collect a consumer debt, one incurred mainly for personal, family or household purposes, from another person who is also liable on it. The federal courts' Chapter 13 overview says this provision "may protect co-signers." The protection has limits:

It does not apply if the co-signer became liable in the ordinary course of the co-signer's business.
It ends if the case is closed, dismissed or converted to Chapter 7 or Chapter 11.
A court can lift it at the creditor's request in situations that include the co-signer having received the consideration for the claim, the plan proposing not to pay the claim, or irreparable harm to the creditor's interest.

The federal courts' Chapter 7 overview says a discharge releases individual debtors from personal liability for most debts and stops collection against the debtor. It does not mention co-signers or a co-debtor stay. The Bankruptcy Code itself, at 11 U.S.C. § 524(e), says the discharge of a debtor's debt does not affect any other entity's liability on that debt, apart from one narrow community-property exception. So a co-signer should not assume a borrower's bankruptcy, under either chapter, ends their own obligation. A bankruptcy attorney can say how this applies to a specific case.

Why release is hard to get

Some loans, private student loans among them, offer a co-signer release, but the FTC says release needs agreement from both the lender and the borrower, and the lender "isn't likely to release you" because it raises the lender's risk. The best-documented data comes from private student loans. In a June 2015 CFPB announcement, the Bureau reported that, among borrowers who applied for co-signer release, 90 percent were rejected. The figure came from responses by private student lenders and servicers the CFPB surveyed, and covers only applicants, not all borrowers.

The same announcement describes why: borrowers often lack information on the criteria, and some company policies permanently bar release for borrowers who prepay while in good standing or accept forbearance. The figure is a decade old and specific to private student loans, so it does not measure auto or personal loan release today. It does show that a release clause is a condition to check in writing, not a promise.

Refinancing the debt in the borrower's name alone is the other route out, subject to the borrower qualifying on their own. The co-signer stays liable until the new loan has actually paid off the original one.

Frequently asked questions

Can a lender require my spouse to co-sign?

Under Regulation B, 12 CFR 1002.7(d), a creditor cannot require the signature of an applicant's spouse or another person, other than a joint applicant, if the applicant meets the creditor's standards for the credit requested. If the applicant does not qualify alone and the standards call for an additional party's personal liability, the creditor may ask for a co-signer, but it cannot require that the co-signer be the spouse. Narrower exceptions let a creditor require another person's signature on documents state law requires to reach collateral, jointly owned property or, in some cases, community property.

Is a co-signer different from a co-borrower?

On repayment, usually not; the contract sets the exact terms. The CFPB says that co-signers are equally responsible for and legally obligated to repay the loan. The usual difference is who receives the benefit: on a car loan, the CFPB notes the co-signer shares the duty to repay even without the same rights to the vehicle. Regulation B's wording also separates a joint applicant, who applies for the credit alongside the applicant, from an additional party the creditor requires for support.

What happens if the co-signer dies?

A CFPB announcement from April 2014 on private student loans found that many contracts let lenders demand the full balance when a co-signer died, even if the loan was current. Some did the same when a co-signer filed bankruptcy. The CFPB said lenders could first check whether the borrower qualified for co-signer release, or keep the existing payment schedule for a period while the borrower found a new co-signer or refinanced, and it told borrowers to ask their servicer directly about release. Auto loan and personal loan contracts vary, so the contract itself is the place to check.

Will I see the loan's statements?

Not necessarily. The CFPB's blog on co-signing an auto loan notes that lenders sometimes send statements only to the primary borrower, and suggests asking whether the co-signer will receive monthly statements. The FTC likewise suggests requesting statements or notice of missed payments, which may give time to fix a problem before it reaches the credit report.

Can the lender collect from the co-signer before the borrower?

Under the federal notice wording, yes. State law can change the order: where a state requires the creditor to try the borrower first, the FTC says the creditor can strike that sentence from the notice. A notice with the sentence removed is a signal that a state rule applies.

Checklist before signing

Ask for the Notice to Cosigner as a separate document and read it before signing the loan contract.
Compute the monthly payment and test it against your own income and debts, as in the example above. Ask whether you could cover it "now and in the future," the CFPB's phrasing, if the borrower stopped paying.
Ask in writing whether you will receive statements or missed-payment notices, and what the release terms are, including any ban tied to forbearance or prepayment.
If a mortgage or other large application is coming, ask the lender how it will count the co-signed payment and what proof of the other party's payments it accepts.
Keep copies of the loan documents, and walk away if you feel pressured. A lender cannot require you to co-sign for someone who qualifies alone.