What Happens If You Cosign a Loan and They Don't Pay?

A single missed payment can drop your score quickly, and the fall follows a predictable timeline tied to reporting and account balances.

At 30 days late bureaus flag a late and you often see the sharpest initial dip, especially if your file was clean; 60 and 90 days amplify the hit and 120 days usually leads to charge-off or default notation. Lates are reported once per billing cycle, so one missed payment can compound if the borrower keeps missing cycles. Severity, recency, and frequency matter most, plus how many accounts you have and your credit use.

Two credit factors drive most of the damage: payment history (~35% of score) and amounts owed (~30%). Higher utilization or rising balances on the cosigned loan deepen the drop. Recovery requires time and action: aging of late items, new on-time payments to rebuild history, disputing errors, or removing inaccurate data. Monitor all three bureaus and score models, and consider a soft-pull review to map repairs without harming your file.

Key takeaways:

• 30/60/90/120-day pattern: first 30-day late causes first big drop, 120 often becomes charge-off.
• Lates report once per cycle and can compound if missed repeatedly.
• Payment history (~35%) and amounts owed (~30%) determine magnitude of decline.
• Monitor all three bureaus and use a soft-pull review to plan repair steps.

A missed payment on a cosigned loan shows up as a delinquent tradeline item tied to both you and the borrower, and it can damage your credit immediately and for years.

Check these tradeline fields and reporting habits, then act fast:

• Payment status codes: 30/60/90/120 indicate days past due and drive score impact.
• Date of First Delinquency (DOFD): anchors the 7-year reporting clock from the first missed payment.
• Remarks: may show 'Cosigner,' 'Charge-off,' 'Collection,' or specific pay status notes.
• Balance and account status: current principal, charged-off amount, or collection balance.
• Furnisher cadence: lenders batch-report monthly, so one missed payment appears on the next monthly cycle for all bureaus.
• Why paid lates stay: paying the balance does not remove the original delinquency or DOFD; it only updates status to paid, which is better but does not erase the history.

Pull weekly three-bureau reports via Annual Credit Report to monitor changes, and file disputes under the FCRA with the lender (furnisher) and each bureau using the CFPB dispute guidance on correcting credit report errors if you spot factual errors.

Cosigning raises your effective debt load, which pushes your debt-to-income ratio up and can block loan approvals fast.

Back-end DTI means all monthly debt payments divided by your gross monthly income. Lenders usually count the cosigned payment against you even when the primary borrower pays. That extra obligation lowers the room you have for new credit. Example: a $350 monthly cosigned payment on a household with $6,000 gross monthly income raises DTI from 38% to 46% (0.38 → 0.46). Common underwriting guardrails: credit cards and auto loans are often treated flexibly, mortgages commonly target ≤43–45% unless strong compensating factors exist, and some programs will remove a cosigned debt if 12–24 on-time payments are verified.

Mitigation options:

• Refinance the loan into the borrower's name only, remove your obligation.
• Pay off the loan early if you can, eliminate the monthly hit.
• Ask lender for a documented exclusion policy or written confirmation of DTI exclusion after verified payments.
• Get the borrower to add automatic payments and share verification documents to speed program-based exclusions.
• Consider substituting collateral or a limited guarantee to shrink your recorded exposure.

If the borrower stops paying, the lender can sue you as cosigner and, after a judgment, pursue wage garnishment and other collection tools.

Triggers

• Missed payments lead to default, then loan acceleration and collections.
• Collections can prompt a lawsuit, you can be named first or sued alone.
• A court judgment opens post-judgment remedies like garnishment, bank levy, liens, or property seizure.
• Some collectors sue quickly; others negotiate before filing.

Protections and exemptions

• Federal cap on wage garnishment is the lesser of 25% of your disposable earnings or the amount by which weekly wages exceed 30 times the federal minimum wage.
• State law can be stricter, and some states ban consumer-debt garnishment for ordinary debts.
• Certain income, like Social Security, is often protected or partially exempt.
• Time-barred debt may limit a collector's ability to sue, but laws vary.

Immediate next steps

• Respond to any complaint quickly, do not ignore a summons.
• Ask the lender for account history and a payoff figure.
• Seek a written hardship or settlement offer, and document every call.
• Consult a consumer attorney or legal aid before court appearance to explore defenses and exemptions.

Documentation and where to learn more

• Keep promissory notes, payment records, and any emails or texts about the debt.
• Track service of process and court dates, and gather proof of protected income.
• Verify state rules and limits before assuming garnishment applies.
• For federal details see DOL Fact Sheet 30 on wage garnishment rules and general consumer guidance at CFPB's guide to wage garnishment rules.

If the cosigned borrower defaults, you can lose money and assets even if you never missed a payment yourself.

A bank you owe may use its right of setoff, which lets it pull funds from accounts you hold there to cover the debt. If a lender sues and wins, a judgment can freeze or drain joint checking and savings, and lead to wage garnishment. Courts can place liens on your real property, and in community-property states a spouse's debt or a cosigned loan can expose jointly owned property. Federal debts, including certain federal student loans and tax debts, can trigger government collection tools and offset your tax refund or Social Security; private creditors usually cannot take refunds without first getting a judgment.

Practical safeguards checklist:

• Move your money to accounts at a different bank than the creditor.
• Open single-owner accounts and avoid keeping large balances in joint accounts.
• Maintain clear records showing your separate contributions to joint funds.
• Immediately claim exemptions on accounts where state law allows protected funds.
• If you are on a joint account, consider removing your name when possible.
• Speak to the bank about locking nonexempt funds in protected accounts, like certain retirement or custodial accounts.
• If federal offset is a risk, review the Treasury Offset Program details and check for eligible offsets.
• Consult a consumer attorney quickly when a creditor threatens suit or levies.

Act fast if you learn of missed payments. Move money out of creditor-held banks the same day if feasible. Keep small operational balances only. Document every transfer and keep copies of statements.

If a judgment is filed, file a claim of exemptions in the court docket to protect exempt cash and benefits. Negotiate a repayment plan only after knowing which accounts and assets are already at risk.

Act fast: confirm the missed payment, stop further damage, and secure fixes you can do right now to protect your credit and finances.

1. Verify and cure within 30 days, contact the lender immediately, pay what's due or set a payment plan to prevent reporting.
2. Enroll in autopay and change the due date to match your cash flow, this prevents future slips.
3. Request hardship relief in writing, ask for deferral, forbearance, or interest-only options and get the lender's response by email.
4. Save every message and receipt, timestamp calls, set account and calendar alerts, and note promises or agreement numbers.
5. Pull all three credit reports to see what posted, then consider a soft-pull account review to plan dispute or cleanup actions only if needed.

Take control fast: get clear written terms from the borrower and the lender so payments happen and your liability stops growing.

Borrower checklist

• Ask for access to monthly statements
• Require a dated written repayment plan with amounts and due dates
• Insist payments go directly to the lender or into an escrow account you both can monitor
• Require proof of each payment (copy of cleared check, bank trace, or lender receipt)

Micro-script for the borrower: "I can stay on as co-signer only if we sign a written plan, you give me statement access, and payments go straight to the lender or escrow; send the plan today and proof of the first payment by X date."

Lender checklist

• Call and request affordable fixes - rate reduction, term extension, lower monthly due, changed due date, or a formal hardship plan
• Ask for removal of late fees and a goodwill adjustment once payments are current
• Get any agreement in writing and recorded on the account

Micro-script for the lender: "I'm a co-signer and can help arrange repayment; will you consider a hardship plan, temporary rate or term change, and removing late fees after cure? Please email the written offer to me."

Avoid informal cash deals and verbal promises, they leave you exposed. Never sign or accept "confession of judgment" or clauses that let the lender collect without notice. Insist on written, dated agreements, copies of any lender offers, and payments routed to the lender or neutral escrow. If the borrower won't cooperate, document every contact, notify the lender you are exercising your rights as co-signer, and consult a consumer attorney or your state's legal aid to discuss defenses and removal options.

You can be removed only if the lender agrees, usually by a formal cosigner-release, refinance to borrower-only, full payoff/closure, or a rare novation.

Most common: a cosigner-release requires a clean payment history, typically 12 to 24 consecutive on-time payments, a credit review, and no recent delinquencies. Lender rules vary, deferments or forbearance usually do not count, and one late payment can reset the clock.

Refinancing replaces the original loan with a new loan in the borrower's name alone, which immediately frees you. Paying the account in full or closing a cosigned card also removes your liability. Novation, where the lender signs a new contract dropping you, is uncommon but final when accepted.

Start by locating the lender's cosigner-release policy page and submit a written request with proof of on-time history; for a general overview see the CFPB cosigner-release explanation.

Steps to remove yourself:

• Request lender policy and timeline in writing.
• Confirm required consecutive on-time payments and acceptable proof.
• Ask if deferment, forbearance, or autopay gaps count.
• Pursue borrower-only refinance if release is unavailable.
• Consider payoff or novation as last resorts.

Documents checklist:

• Account statements showing on-time payments.
• Lender's release policy or written instructions.
• Photo ID and signed written release request.
• Borrower's refinance application (if applicable).
• Records of any communications with the lender.

The financial harm and your legal obligation from a cosigned loan can last years and in some cases decades, depending on credit reporting rules, court judgments, and state statutes.

Most delinquencies, charge-offs, and collections stay on credit reports up to seven years from the Date of First Delinquency; a court judgment can extend collection rights and often be renewed under state law, so a judgment may keep exposure alive much longer. Liability itself continues until the debt is paid or until the statute of limitations to sue runs out, which varies by state and can often be restarted if you make a payment or acknowledge the debt; note federal student loans do not follow state statutes of limitations and can be collected indefinitely, including Treasury offsets. For more on time-barred debt rules see what to know about time-barred debts.

Practically, expect credit damage visible for up to seven years, but understand a judgment can lead to wage garnishment, bank levies, or liens until resolved, so act quickly to negotiate, seek removal, or pursue legal options to limit long-term exposure.

Cosigning can turn small family favors into big legal and credit headaches fast.

Borrower ghosts you after missed payments, lender calls hit your credit, and collection notices arrive in your name.

• Demand written payment plan from borrower, get copies of all statements, and document every contact.
• Contact lender to request payment options and ask for notice before reporting, then monitor your credit daily with tools like free credit reports from authorized providers.

Your partner pressures you to cover the loan to "keep peace," or uses shared accounts that lenders can set off.

• Freeze or remove authorized-user access, move funds to separate accounts, and set a written boundary that payment is borrower's responsibility.
• If pressured or threatened, prioritize safety, document abuse, and access domestic-violence financial abuse resources for legal and financial protection.

Parent-child tension: you paid to avoid repossession but payments stop again; or a sibling's default threatens joint assets and tax refunds.

• Reclaim payments by agreement in writing, seek reimbursement clauses, and consider small-claims court if needed.
• Protect assets: separate bank accounts, consult a consumer attorney for credit or debt issues, and check for possible setoff of tax refunds or joint accounts.

Cosigning makes you legally responsible for the loan, so if the borrower misses payments you can be billed, sued, and harmed credit-wise.

Can a creditor sue me without suing the borrower?

Yes. As a cosigner you are a party to the contract and creditors can pursue you directly. They may sue, obtain judgments, and garnish wages or levy assets depending on state law.

Does cosigning affect my credit if all payments are on time?

Yes. The account appears on your credit reports and its balance counts toward your obligations. On-time payments help your history, but the added balance can raise your debt-to-income and influence lending decisions.

Will paying off early help my score?

Paying the debt removes your liability and lowers DTI immediately. Closing an installment loan may slightly change your credit mix, but the net effect is usually positive over time.

Can I freeze my credit while I'm a cosigner?

Yes, you can freeze your own credit file to block new accounts in your name. A freeze does not stop collection activity on existing accounts where you are liable, including cosigned loans.

Can collectors call me?

Yes. Collectors can contact you because you are legally responsible, but the Fair Debt Collection Practices Act limits harassment and abusive tactics. You can request specific contact methods and dispute debts in writing.