What to Do if You Regret Co-signing on a Loan


If you have a loved one who at some point found themselves in dire financial straits, you may have taken the plunge and co-signed on a loan or credit card to give them a much-needed boost. You’re now feeling the all-too-common feeling of co-signer’s remorse, which happens when your co-signer defaults on payments, files for bankruptcy or passes away, leaving you with the responsibility of paying back the lender. Though the options available to you are by no means simple, there are steps that you can take to get out of your predicament.

What happens if a co-signer stops payment

As you should know from when you agreed to become a co-signer, failure to pay on a credit card or loan by the person for whom you have co-signed leaves you financially liable to make payments. Co-signing means you are willing to share the responsibility for paying back a loan or credit card balance even if you are not benefiting directly. If the other co-signer is late on a payment, it counts just as it would if you made a late payment. If they stop paying entirely, you must pick up where they left off.

It doesn’t matter if your co-signer has been rendered physically unable to work, has died or is simply negligent — if your co-signer doesn’t make the required payment, you are legally obligated to. This may be less formidable (but no less inconvenient) in the case of a credit card with a moderate balance, but it can be a life-altering and finance-ruining event in the case of student loans or a mortgage. While having great credit makes you an ideal candidate to co-sign for someone in need, co-signing puts you at risk of having your credit score suffer and can even put you on the precipice of financial ruin.

What you can do if you’re stuck

There are several avenues you can consider if your co-signer is not making payments, though none of them are particularly ideal. In the case of a co-signed loan, Latoya Irby of The Balance provides three options for having your name removed: obtaining a co-signer release, refinancing or reconsolidating the loan or selling off an asset to pay for the loan. With the latter, you can sell a car or home to help pay off the balance owed to the lender, but only if your name is on the title.

Refinancing or reconsolidating is an option available to you only if the borrower is willing and qualified. A good credit history and sufficient income are necessary for this approach, which makes it less likely in the case of a borrower who is struggling, financially negligent or has passed away. You may also have the option of a co-signer release on the condition that you make a set number of on-time payments in a row — according to Irby, two years’ worth of payments is the standard. This will be available to you only if it’s mentioned in the terms of the original loan or if the lender is willing to offer it to you as an option.

In cases where you co-signed on a credit card, your best result is if the person for whom you co-signed transfers the remaining balance onto a card that’s in their name only. From there, Irby notes that you should close the co-signed credit card and ensure that the card issuer renders the card unable to be reopened.

Beyond these solutions, your options become a bit gimmer. On the one hand, you can pay off the balance. This will severely hinder your ability to save money and may even make it difficult to meet other financial obligations, but it will at the least ensure that you are not pursued by debt collectors and that your credit score is not sabotaged. Irby also suggests bankruptcy as a last resort if you find yourself unable to make payments on behalf of your co-signer and your own payments. You’ll want to first consult with a bankruptcy attorney to make sure that you’re aware of the implications of doing so and that it is truly your best alternative.

When it comes to co-signing on a loan, being forewarned is forearmed: You absolutely should only co-sign for someone if you are positive that they will hold up their end of the obligation and are willing to deal with the fallout if they do not. Before you agree to co-sign for anyone, speak with a financial professional and learn more about the risks.

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