Co applying for a Loan: What You Need to Know

As loans get harder and harder to apply for, it may not be long before a friend of family member asks you to sign on a loan as a co applicant. Often, if a person cannot get a loan on their own, they can gain loan approval by adding a co-applicant with a higher credit rating than their own. However, before you sign loan papers as a co-applicant, it’s important that you recognize the implications of doing so. Otherwise, you could be in for an unpleasant surprise, and your credit could end up with long term damage. To avoid jeopardizing your credit rating and financial security, it’s wise to educate yourself about exactly what it means to be a co applicant.

Co applicants carry the same responsibilities as applicants in terms of money owed, repayment, and debt obligation. Whether you’re applying for a car loan, personal loan, or credit card, you will be held as responsible as your friend or loved one for the debt. It’s important to recognize that being a co-applicant on an account is completely different from being an authorized user. As an authorized user, you have permission to use and possibly even modify the account, but are not help liable for the debt if the original user is unable to pay. If you are a co-applicant on a loan, you and the original applicant are equally responsible for the debt, as well as it’s repayment.

If the potential applicant is a spouse, child, or close relative, you may still consider signing the application if they have proven to be financially trustworthy. However, if they have shown themselves to be financially irresponsible, you may want to think twice before making a final decision. If they lose their job, become disabled, or are unable to pay for another reason, you will be required to pay back the full amount, and the hit will go on your credit rating as well as theirs. It may not always be wise to co-sign on a personal loan.