Should You Cosign A Loan For Your Partner?

Does your partner have their eyes on a new car or house? In today’s world, the only way for most people to get something like that is to apply for a loan. To apply for a loan, lenders need proof that you are “worthy” of the amount they are lending and trust it will be paid back. This is primarily determined by a credit score. If your partner doesn’t have a great credit score and can’t get approved by a lender, they may need you to cosign for them. Should you do it?

What Is A Cosigner?

A cosigner meets a lender’s qualifications for a loan and boosts the ability of the primary borrower to acquire the loan. To meet most lender’s qualifications, you need a good credit score and disposable income.

  • A credit score is a specially calculated number that tells lenders your creditworthiness. This number is based on whether you have missed payments in the past, how much of your current credit is being utilized, and how often you open new credit lines.
  • Disposable income is calculated based on your debt-to-income ratio. When determining if you or your partner can take on a loan, the goal is to not add another monthly payment you can’t afford.

Cosigners don’t have to be marital spouses. They can be your girlfriend/boyfriend, friend, or anyone else. But usually, you cosign for a partner you have a relationship with.


Better Interest Rate

Even if your partner has a bad credit score, you can boost their chances at a better interest rate if you have a good credit score and cosign. Getting a lower interest rate on a loan will save money for your partner and increase their chances of affording the loan.

Probably Will Mutually Benefit

Whether it is your spouse, fiancé, or girlfriend or boyfriend, if they are trying to buy a car or house, more than likely you will also benefit from the purchase.


Increases Your Debt

Every time you cosign a loan, you are increasing your debt. Increasing your debt can inhibit your chances of successfully applying for future loans by yourself. This is because you increase your debt-to-income ratio. While you might not be the one making the monthly payment on the cosigned loan, it is still factored in, just in case the primary borrower is no longer able to make the payments.

Responsible For Missed Payments

If the primary borrower you cosign for misses a payment or fails to make any payments, it will affect your credit score. In addition, you have agreed to lenders to be responsible for the debt if the primary borrower fails to make payments.

Removing A Cosigner

Before you enter any contract and cosign a loan for someone else, make sure you are okay with taking the risk. Cosigning a loan for your partner includes being responsible for the loan during your relationship and in the event you break up or a divorce is filed.

To remove yourself from a cosigned loan, the primary borrower will need to prove to the lender they can handle the debt themselves. This will require them to qualify for the refinancing. If they cannot qualify by themselves, you will still be required to make sure payments are being paid on time, even if you have separated from your partner.

While you can help your partner to reach their goals by cosigning their loan, be aware of how it could affect your credit score and future ability to apply for loans.