Definition
A person who signs a loan with the borrower and is fully responsible for repaying it if the borrower does not.
What it means
A cosigner adds their credit and income to someone else's loan application, which can help a person with little credit history, such as a student or newcomer, get approved or receive a better rate. The cosigner is legally responsible for the whole debt. If the borrower pays late or stops paying, the lender can collect from the cosigner, report late payments on the cosigner's credit report and in many states sue the cosigner without first pursuing the borrower. The loan also counts in the cosigner's debt-to-income ratio, which can affect their own borrowing. Under an FTC rule, lenders must give cosigners a written notice explaining these risks. Some private student loans offer cosigner release after a series of on-time payments; check the terms.
Example
A parent cosigns a $15,000 car loan. If the young driver misses three $300 payments, the lender can ask the parent for the $900 past due, and the late payments may appear on both credit reports.
Illustrative numbers only. Your situation will differ.