What Happens If You Don’t Pay a Cosigned Loan on Time? Consequences for Borrower and Cosigner

Cosigners can make a huge difference for borrowers with poor credit (or no credit at all). But cosigning a loan also invites severe risk: If the borrower can’t make payments, the burden falls on the cosigner to keep the loan in good standing.

So what happens to both parties when the borrower doesn’t pay back their cosigned loan on time? We’ll explore the consequences below.

Table of Contents

1. What loans can you cosign?
2. What if you don’t pay back a cosigned loan on time?
3. What if you’re a borrower on a cosigned loan and can’t pay?
4. What if you cosigned a loan and the borrower stopped making payments?
5. What if you cosigned a loan but want to be removed?
6. FAQ

What loans can you cosign, and what does it mean?

When borrowers can’t qualify for a loan on their own, they may improve their approval odds—and potentially secure a better interest rate—by applying with a cosigner who has good credit and a stable income. This signals to lenders that, should the borrower fall behind on payments, the cosigner can step in to help.

Cosigners are common for student loans since high schoolers typically haven’t established credit. While federal student loans are available sans cosigners, we found that more than 90% of private student loan borrowers use cosigners.

You can get a cosigner for other loans, too, including:

• Mortgages
• Auto loans
• Personal loans
• Credit cards

Be careful:

Consider the pros and cons of cosigning a loan before moving forward.

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Avoid cosigning loans at all costs. If you must cosign—while this is rather macabre—consider having the other party take out a life insurance policy for the amount of the loan. We even have life insurance coverage that declines each year, matching the outstanding loan amount.

If you don’t do this, and, God forbid, something happens and the other borrower dies prematurely, you’ll be on the hook for the full outstanding balance.

What happens if you don’t pay back a cosigned loan on time?

When you miss a payment, your loan becomes delinquent, but you can quickly make a payment to get caught up.

However, loans can go into default if more time passes without payment; the period varies by lender and type of loan, but it’s generally 30 to 90 days.

Both loan delinquencies and defaults affect your credit score and finances, but defaulting is much more detrimental. Here’s what it means for both borrowers and cosigners.

Consequences for the borrower

What happens if you fall behind on your loan payments? Here are some potential consequences:

• Late fees: Your lender may charge late fees if you miss the payment date. Occasionally, lenders may waive the fee if it’s the first instance or if you make the payment within a predetermined grace period. Fee amounts vary by lender and loan type.
• Credit score impact: Some lenders report late payments sooner than others; if you make your payment a day or two late, you’re probably safe. But if you default on a loan? That will absolutely get reported to the credit bureaus, and your credit score could drop by 100 points or more. 
• Service challenges: Loan defaults are red flags to landlords, insurance companies, employers, and even cellphone companies, who may reject your applications.
• Collection methods: Your loan could eventually be sent to collections; continued failure to pay could result in legal action and wage garnishment.
• Relationship troubles: If you fall behind on payments, a creditor can go straight to the cosigner, which could damage your relationship with them.

Consequences for the cosigner

What happens if you cosign a loan and the other person doesn’t pay? You can face the same consequences as the borrower, including:

• Financial impact: To avoid any of the other consequences below, you can pay on behalf of the borrower, but that means less room in your own budget. It’s up to you and the borrower to figure out how to settle up later.
• Credit score impact: If you don’t pay on behalf of the borrower, your credit score will take a hit.
• Legal action: Lenders can pass over the borrower and sue you directly if you don’t make payments. This could mean expensive attorney fees, and the court will likely rule that you must pay the debt anyway.

Unless you have the financial wherewithal to completely repay the loan should the other borrower be unable to make payments, I recommend you avoid cosigning loans.

What to do if you’re a borrower on a cosigned loan and can’t afford to pay

Before landing your cosigner in hot water, there are helpful actions you can take as the borrower when you can’t afford the loan payment:

Explore repayment options and deferment

Student loans may offer economic hardship options, such as an income-driven repayment plan, deferment, or forbearance. These options are more common for federal loans; if you have a private student loan, contact your lender to understand your options.

Refinance your loan

If your credit score is strong enough, you may be able to refinance your loan without your cosigner. This is an easy way to protect the cosigner in the event that you ever can’t make a payment. Refinancing to a longer loan term could also lower your monthly payments and make it less likely you’ll fall behind.

Sell your property

If you’re struggling with a mortgage or car payment, sell the property and downsize to something more affordable. Unless you’re upside-down on the loan, the funds from the sale should be enough to pay it off.

Adjust your income and expenses

There are two ways to make your budget work with your current monthly loan payment so you don’t fall behind:

1. Cut out discretionary spending, like dining out, so you can afford the loan payment.
2. Get a second job or side hustle to afford all your monthly expenses, including the loan payment.

Ask the cosigner to take over

If you’ve done all you can to keep up with your monthly payments, but you’re still falling short, speak with your cosigner as soon as possible. The conversation will be tough, but it’s better to let them know what’s happening now than to surprise them later when you default.

What to do if you cosigned a loan and the borrower stopped making payments

As the cosigner, you have a few options if the borrower can’t—or won’t—pay back their loan.

Options if the borrower can’t afford payments

Assuming the borrower is well-intentioned but can’t afford the monthly payment, you can:

• Make the payments for them: Not ideal for your finances, but this protects your credit score until the borrower is in a better position to pay.
• Help the borrower make a budget: Sit down with the borrower to identify expenses to cut and ways to earn more money. Check in regularly with them to ensure they’re sticking to the budget and making payments.
• Set them up with credit counseling: If the money problems are beyond your expertise, seek professional assistance. A credit counselor can help the borrower devise a game plan to keep up with their debts. With proper guidance, the borrower might be able to resume payments.
• Explore refinancing: The borrower’s credit score may not be strong enough to refinance on their own, but they might qualify if you remain as a cosigner. While this means you’d still be a cosigner, a refinance could at least result in lower, more manageable monthly payments for the borrower.

Options if the borrower refuses to pay

If you and the borrower have a strained relationship, and they’re making no efforts to repay their loan, you have a bigger problem. Here’s what you can do as a cosigner:

• Make the payments for them: It’s not fair, but it’s the best way to ensure your credit score doesn’t take a hit.
• Take them to court: Can a cosigner sue the primary borrower? Absolutely. If the borrower has the means to pay but refuses, you can take them to court. If successful, you could recover the money you’ve had to pay on their behalf, plus court costs.

What to do if you cosigned a loan but want to be removed?

You have a few options to remove yourself as cosigner on a loan:

Cosigner release

Many private student loans offer cosigner release. These programs allow the student borrower to apply to remove their cosigner after a set number of consecutive, on-time payments.

The table below shows a few top student loan lenders with cosigner release and the number of on-time payments required before you can qualify:

Lender	Cosigner release requirements	Our rating
Sallie Mae	12 consecutive on-time payments	4.8/5
College Ave	Half the original repayment term completed	5.0/5
SoFi	24 consecutive on-time payments	4.7/5
Ascent	12 consecutive on-time payments	4.4/5

Obtaining cosigner release approval can be challenging; lenders have strict credit and income requirements. But it’s worth a shot if it means freeing the cosigner from a long-term loan.

Some auto loans may also offer cosigner release.

Loan refinance

Whether you cosigned a mortgage, car loan, student loan, or personal loan, you may be able to get off it if the borrower agrees to refinance. When the borrower refinances, they’ll need to meet all requirements (including credit score and income) on their own to get approved.

If you’re a parent hoping to get off your child’s private loans, start your search with these best student loan refinance companies—but remember, your child must agree to the refinance.

Cosign a different kind of loan? Here are some helpful resources:

• Best mortgage refinance companies
• Best banks to refinance an auto loan
• Best credit unions to refinance an auto loan
• How to refinance a personal loan

Lender approval

Some mortgages may have a liability release clause that allows cosigners out, with lender approval. Start by carefully reading through the mortgage documentation, and then follow up with the lender to determine whether it’s possible to refinance or otherwise get off the loan.

Sell the property

A final option is to convince the borrower to sell the house or car they’re financing. When the sale goes through, the funds will pay off the loan and free you from the burden.

Similarly, if you cosigned a credit card and you fear the borrower may land in credit card debt, you can ask them to close the card that you cosigned for and get a card on their own.

FAQ

How soon can a cosigner be removed from a loan?

A cosigner can be removed once the primary borrower meets certain lender criteria. This usually involves making a set number of on-time payments or refinancing the loan independently. Some lenders offer formal cosigner release programs, but approval depends on the borrower’s credit and income.

Can a cosigner go to jail?

Cosigners cannot go to jail for missed payments alone. However, they are legally responsible for the debt if the primary borrower doesn’t pay. Lenders can sue for repayment and may pursue wage garnishment, but jail is only a risk in cases of fraud or illegal activity.

How can I protect myself as a cosigner?

To protect yourself, only cosign for someone you trust, and make sure they can handle the payments. Ask about cosigner release options upfront, and monitor the account for missed payments. You might also consider a side agreement that outlines repayment responsibilities.

Who gets the credit on a cosigned loan?

Both the borrower and the cosigner benefit from timely payments and suffer from late ones. The loan appears on both credit reports, helping build or hurt both credit histories. However, the cosigner doesn’t gain ownership of any assets tied to the loan unless listed on the title.

Can a cosigner take your car away?

No, a cosigner can’t take back a car unless their name is on the title. Cosigners are financially liable but don’t have ownership rights. If the borrower defaults, the lender may repossess the car, but the cosigner can’t seize it themselves.