The correct definition of a cosigner for a loan is someone who agrees to take responsibility for repaying the loan if the primary borrower fails to do so. A cosigner typically has good credit and income and is legally obligated to repay the loan if the primary borrower misses payments or defaults. The cosigner does not usually have ownership of the loan funds or assets but shares equal responsibility for repayment. Lenders require a cosigner to reduce lending risk when the primary borrower has limited credit history, poor credit, or insufficient income.
Key Points About a Cosigner
- A cosigner helps the primary borrower qualify for a loan.
- The cosigner is equally responsible for the debt.
- Cosigning can impact the cosigner's credit score if payments are missed.
- Cosigners do not typically have ownership rights over the loan or collateral.
- It is often required for people with low or no credit history or insufficient income.
This role is distinct from a co-borrower, who also shares ownership of the loan's funds or assets along with repayment responsibility.